Tax Saving Advice: VAT is going up to 20%...

Tax Saving Advice: VAT is going up to 20%...: "The standard rate of VAT will be rising to 20% on 4 January 2011. So what should you be doing? InvoicingThe correct rate of VAT to apply i..."

VAT is going up to 20%...

The standard rate of VAT will be rising to 20% on 4 January 2011.  So what should you be doing?

Invoicing

The correct rate of VAT to apply is that applicable on the day the customer receives the goods or services. This means that invoices raised before 4^th January 2011 should charge VAT at 17.5%; invoices raised on or after 4^th January 2011, 20%.

However, if you raise an invoice in January 2011 for goods etc delivered in December 2010, you can charge 17.5%.

Increasing your VAT inclusive prices

To increase your VAT inclusive prices to reflect the increase in the VAT rate to 20% you should multiply your old prices by 120/117.5, which is equal to 48/47.

Deposits

If you take a deposit on goods or a service before 4^th January but deliver on or after the 4^th January then the deposit is subject to 17.5% and the balance at 20%. If you raise the full invoice before 4^th January then the VAT rate is 17.5%.

Continuous Work

If you provide work on a continuous basis, once you pass 3^rd January 2011 you can charge VAT at 20% on the entire bill, including the work done when the rate was 17.5%, so long as you can prove that this is fair. Otherwise charge 17.5% on the work done before 4^th January 2011 and 20% on the rest.

Single Supplies

For single supplies (e.g. decorating a house) carried out over a period of time, you could also issue a VAT invoice before 4^th January on the whole job and, even though the job is finished after 4^th January 2011.  It can all be charged at 17.5% provided your bill has been paid for by the 3^rd January 2011.

Credit Notes

If you raise a credit note after the 3^rd January against a 2010 invoice you should use the same VAT rate on the credit note as per the original invoice.

Suppliers

All the above applies in reverse for invoices you receive from suppliers.  Therefore you should check that you have been charged the correct rate of VAT.