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PBR 2008: Analysis – Some useful facts on VAT rules - Alan Pearce, VAT partner, Blick Rothenberg

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24th Nov 2008
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Breaking opinion and analysis on the Pre-Budget Report. In light of the reduced VAT rate, Alan Pearce points out some basic applying rules.

Output VAT – General rule:
The VAT rate to be applied is determined by the tax point rules, which are the earlier of the basic tax point which is;

  • For goods: when they are physically delivered or made available to the customer;
  • For services: 1. when the service is performed; or, 2. the invoice date, or 3 the date payment is received.

    Output VAT – Special Change of Rate Provisions
    Upon a written election to HMRC, 2 and 3 above can be ignored. Therefore, when the rate goes down, VAT may be charged at the lower rate even though payment has been received or a VAT invoice issued before the rate change. Credit notes to adjust the VAT must be issued within 14 days of the rate change.

    Continuous Supplies of Services
    Where a continuous supply of services spans the rate change (i.e. for most BR and BRAL services) VAT can be invoiced at the lower rate for the whole period. Where a VAT invoice has been issued in advance of the supply taking place a credit note can be issued provided this is done within 14 days of the rate change. A credit note cannot be issued for invoiced services that have already taken place unless there is a genuine reduction in the value of the supply (other than as a result of the rate change).

    Deposits paid in advance of the rate change Provided there has been no basic tax point at the time of the rate change the deposit can be account for under the new rate and a credit note issued to amend any invoice issued to cover the deposit paid.

    Input VAT – General rule:
    Reclaims to input VAT must be at whatever rate is invoiced by the supplier. Where VAT is not required to be shown separately (e.g. on less detailed tax invoices under £250) the rate must be applied in accordance with the above tax points.

    Other circumstances
    Be warned! Specific provisions apply to subscriptions, hire purchase and conditional sales, credit and contingency discounts, second hand goods, warehoused goods.

    ***

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