The VAT increase from 17.5 to 20% has been well publicised and everyone should be updating their software or calculations to account for VAT at 20% from 4 January. There are however various reasons why VAT may still be charged at 17.5%:
- The VAT charge is based on the tax point which is generally the point at which the goods or services are provided. So if you have provided some goods or services before 4 January but not yet invoiced, the VAT should be charged at 17.5%.
- By the same token, if for example a customer returns some goods purchased before 4 January and you issue a credit note, this likewise should be credited using 17.5% VAT.
- If you are accounting to HMRC on a cash accounting basis, you are likely to be receiving payments for pre 4 January invoices and these should be recorded for your VAT return at 17.5% not 20%.
Other hints and tips:
- If you are a retailer you have 28 days to alter prices on your product provided there is a sign clearly showing that an adjustment will be made at the till.
- The new VAT fraction is 1/6, so if you want to find out how much VAT is included in a sale, multiply the gross amount by 1/6. For example VAT of £20 is included in a sale of £120 (ie £120 X 1/6).
- Some sellers are not increasing their prices, this is in effect an additional discount to the customer, they still have to account for current sales at 20% VAT.
- For more links and information see the HMRC Get Ready for the VAT rise press release.
- And finally a reminder to set the standard VAT rate on your software to 20%.
This article highlights some of the main points to consider but may not apply to your specific circumstance so please seek professional advice before taking any steps based on the information shown. If you would like advice in this or other areas feel free to call. Alastair Wood, AW Accounting, Gravesend – Accountants who “speak your language”