IT Consultancy

News Item: VAT - Change in Standard Rate

PIERCE ENEWS ISSUE 13

VAT - change in standard rate to 20%

On June 22, as widely predicted, the Chancellor announced an increase in the basic rate of VAT to 20 per cent.

The increase is effective for supplies made on or after January 4, 2011. It will predominantly affect those businesses which supply either members of the public, or other businesses which are either not registered for VAT or alternatively those that are registered but which are partially exempt and unable to recover all of their input VAT.

All of the above may wish to consider accelerating purchases in order to benefit from the current rate of VAT.

Some businesses will see this as an opportunity to accelerate some supplies so these are treated as taking place ahead of the January 4 deadline, but note that HM Revenue & Customs have introduced special rules ('anti-forestalling measures') that are aimed to prevent the manipulation of the rules in particular circumstances.

HMRC has published detailed guidance on the rate change and has introduced rules aimed at making compliance easier to achieve: in addition, it has confirmed it will also be adopting a 'light touch' regime for the first return falling due for submission after January 4, particularly where there is no loss to the Exchequer.

Other points to note are:

	Businesses which account for VAT on fuel provided for private motoring by using the Vehicle Fuel Scale Charge should ensure they use the new rates from January 4. The new quarterly rates of the scale charge will be shown on our website.

	Additionally, businesses which account for VAT under the Flat Rate Scheme should ensure they use the new flat rates from January 4 and again these will be available on our website. In an attempt to make the scheme more attractive and to extend this to more business, the flat rate turnover threshold at which businesses must leave the scheme is increased to £230,000.

	Any business which uses either a bespoke or a generic software package must ensure it has the necessary upgrades in place to cope with the change – don't leave this until the last minute.