The New VAT Rate

• Normal tax points rules will apply.   Invoices issued or money received prior to 1^st December 2008 remain at 17.5%. Request for payments issued [where the continuous supply of services rules apply] including VAT will have a tax point when payment is received. If received after 1^st December 2008 you can issue invoice at 15%, decreasing the VAT, but increasing the customer's net payment. Adjust on next bill. Request for £1175 will be invoiced at £1021.74 plus 153.26 VAT. Or re-issue request for £1150.  

• All quotes /estimates issued VAT inclusive or at 17.5% can be amended to adjust for the reduction. VAT inclusive quotes to be adjusted by reducing the price quoted by 2.13%. Note this is not compulsory, but encouraged by the government to pass the saving onto the consumer. Quote at £1000 including VAT. VAT £148.94, net £851.06. At new rate reduce quote to £978.70, VAT £127.66 net £851.04. 
  

• Retailers should reduce the selling prices of their standard rated goods by 2.13% to reflect the reduction in VAT. Again this is not compulsory, but encouraged by the government. If the prices do not reduce, you will have irate customers. Retailers who are already offering major discounts may decide to do nothing. Retailers selling low value items will have the greatest difficulty i.e confectioners/stationers/ supermarkets/corner shops.  

• There is no requirement to amend the prices, either through any EPOS system or ticket pricing. This could be a major cost, in money and in time, therefore you may wish to discount at the till. Perhaps a sign in the shop stating all prices of standard rated goods marked are discounted by 2.13%.To avoid confusion for the customer, you could discount by 2.5% or 2% stating that the lesser reduction is due to administration costs. This is especially so since the reduction is to last for 13 months only. Remember customers will be expecting a 2.5% cut. 
  

• Invoices and supplies already made will remain at 17.5%. No adjustment to the VAT is allowed, even if paid for after 1^st December 2008. If invoices have been pre-issued, but the supply not yet made, then a credit note can be issued and re-invoiced at 15% upon delivery.

 

• Incorrectly charged VAT should strictly be adjusted by the supplier. If invoiced incorrectly then recover the 17.5% VAT as charged and await a credit note. Suppliers incorrectly charging will hopefully pay the 17.5% to Customs, hence no adjustment required. Non VAT registered businesses should always ensure VAT rate charged is correct.  

• Refunds to customers after the rate change, where sale made at 17.5% should be dealt with at the rate declared.  If 17.5% VAT declared, then adjust VAT account at the same rate. If returned goods invoiced at 17.5%, issue credit note for the same value and same VAT rate, as originally charged.  

• New VAT fraction for VAT inclusive sales is 3/23rds  [15/115]  

• Goods ordered but supplied after 1^st December 2008 will be at 15%. Amend RSP or invoice accordingly to reflect VAT reduction.  

• If records on computer and VAT fraction already automatically set, or if computerised till is set to account for VAT and issue receipts with the VAT calculated at the old rate of 7/47ths, please amend with effect from midnight on the 30^th November 2008.

 

• Visitors to pubs/clubs and restaurants will expect to see a reduction in the selling prices. If a pint of beer sells at £2.50, a drinker would expect to see a reduction of 5p. Meals at £10 should be reduced by 21p.  

• Rounding up or down is at the discretion of the retailer, when applying the 2.13% reduction.  

Thanks to BSSA and Abbey Tax for preparing this important information