HMRC are reminding businesses to be ready for the VAT increase. In a recent press release HMRC Director of CT & VAT Jim Harra said:
'With the Christmas and New Year holidays almost upon us, businesses must be ready to implement the increase to the standard rate of VAT.'
'Don't leave it until the last minute to make any necessary changes to your book-keeping and accounting systems including invoicing and tills. You also need to make sure your staff are fully aware that the new 20 per cent rate must be charged from 4 January.'
As you are no doubt aware the standard rate of VAT will increase from 17.5% to 20% from 4 January 2011. The reduced rate of 5% and the zero rate will remain unchanged. Businesses need to ensure that they are ready for this change.
For any sales of standard rated goods or services that take place on or after 4 January 2011 businesses should charge VAT at the new rate of 20%.
This means that businesses currently calculating their VAT using the VAT inclusive fraction of 7/47 should, from 4 January 2011, use the new VAT fraction of 1/6.
There are many rules which determine the correct rate of VAT to apply, for instance:
Goods/services provided before the change
The new rate generally applies to all VAT invoices issued by a business on or after 4 January 2011. However, where a business issues an invoice on or after 4 January 2011 and the goods or services were provided prior to 4 January 2011, the business may apply VAT at 17.5%.
Goods provided after the change
If a business has received a payment or issued an invoice before 4 January 2011 but the goods will be provided (or services delivered) after 4 January 2011 then the supplier has a choice, either:
• to leave the VAT charged at 17.5%; or
• to account for VAT at the new 20% rate.
Electronic tills and accounting software
Electronic tills and accounting software will also need to be adjusted to reflect the new rate. This will be a particular issue for those tills which are set up to provide VAT information.
Most accounting software packages do have a facility to change the rate of VAT or create an additional rate of VAT. It may be preferable to create a new 20% rate, rather than delete the 17.5% rate, as some businesses (especially those who use cash accounting) will need the old standard rate for certain transactions for some time to come.
HMRC have issued lots of guidance which can be found at the link below. If you would like help dealing with the change please do get in touch.
This information is provided from our members, Simpkins Edwards, as featured here.
Member since: 3rd May 2012
I am the Membership Manager at thebestof Exeter. My role is to maintain good relationships with the best businesses in Exeter. I am also involved in organising our bi-monthly networking events and help...