As you will all be aware, the Standard Rate of VAT will now revert back to its old rate of 17.5% from the 1 January 2010.  It is therefore important that you are accounting for VAT correctly. We at Marsland Nash intend to make the changeover easier for you, and highlight the important changes below:

The Basics

The standard rate of VAT was temporarily reduced to 15 per cent on 1 December 2008 and it will return to 17.5 per cent on 1 January 2010.

For any sales of standard-rated goods or services that you make on or after 1 January 2010 you must charge VAT at the rate of 17.5 per cent. If you have a cash business and calculate your VAT using the VAT fraction you must revert to the VAT fraction of seven forty sevenths (7/47) from 1 January 2010.

The change only applies to the standard VAT rate. There are no changes to sales that are zero-rated or reduced-rated for VAT.  Similarly, there are no changes to the VAT exemptions.  Any sales you make at these rates are unaffected by this change.

Retailers

If you are a retailer you must use the 17.5 per cent rate for all takings that you receive on or after 1 January 2010. But if your customer pays after 1 January for something they took away (or you delivered) before 1 January 2010, your sale took place before 1 January 2010 and you should use the 15 per cent rate.

Services you start before 1 January 2010 but finish afterwards

If you start work on a job before 1 January 2010 but finish afterwards you may account for the work done up to 31 December 2009 at 15 per cent and the remainder at 17.5 per cent.  If you choose to do this you will have to be able to demonstrate that the apportionment is fair.

Continuous supplies of services

If you provide a continuous supply of services, such as leasing of photocopiers, you should account for the VAT due whenever you issue a VAT invoice or receive payment, whichever is the earlier.  You must charge 17.5 per cent on invoices you issue and payments you receive on or after 1 January 2010.  You may, if you wish, charge 15 per cent on the services you’ve provided in the period up to 31 December 2009 and 17.5 per cent on the remainder.  If you choose to do this you will have to be able to demonstrate that the apportionment is fair.

Special VAT schemes for small businesses

Cash Accounting Scheme

If you use the Cash Accounting Scheme you will need to be able to identify payments received after 1 January 2010 that relate to supplies made before that date. VAT at a rate of 15 per cent will be due on these payments.

Annual Accounting Scheme

Your installments will not be affected by the change in the standard VAT rate.

Flat Rate Scheme

On 1 January 2010, the flat rates will broadly return to their November 2008 levels.  HM Revenue & Customs will be reviewing the rates to check that they accurately reflect the VAT paid by businesses in each sector.  Some adjustments may therefore be necessary. The flat rates will be finalised and published towards the end of 2009.

Computer Software Programmes

Sage and QuickBooks will be issuing the relevant Guidance Sheets in due course.  However, if you have not received these by mid December, please contact your Software provider.

We will of course be available at any time should your require any further detailed explanations or advice.  We therefore strongly advise that you contact us should you require any further information.

(All details correct at time of printing 20 October 2009 and in accordance with HMRC guidelines).

Posted on 20 Oct 2009