VAT rate increase: The business impact

Thanks Neil. You may also find these notes on the Commercial and Systems Implications of the 20% VAT rate useful

The article mentions a 12 month advance invoice dated 1st January 2011 being paid in 12 monthly installments, but what if it were all paid in advance? Is it still OK to charge VAT at 17.5% even though the service will be performed over 12 months to December 2011? 

This would be fine Lee, as long as the value of the advance invoice was less than or equal to £100,000 excluding VAT. The other point is that an advance invoice or prepayment is fine if it is a 'normal commercial practice' for the transaction in question and relates to the letting, hiring or rental of assets and covers a period of twelve months or less. The key challenge here is to ask whether the same invoice would be raised at the same time if there was no change in the rate of VAT. If the answer is a 'yes' to this question, there is unlikely to be any problem with the anti-forestalling legislation.

We are a membership organisation and operate on a VAT cash receipt basis. ie we don't issue invoices, only VAT receipts when we receive the cash. After we send out "renewal notices" ,not invoices ,at the start of December. The trouble is our year starts on 1st January 11! There will be those who pay up to the 3rd January  2011 -who should pay at 17.5%, and those that pay after 3rd January 2011, who should pay at 20%. When HMRC say they will take a soft touch in Q1, would I be okay in just declaring what the member pays regardless of when he/she pays!

Re. Colin's membership fees problem:

My interpretation of the anti-forestalling legislation is that SOMETHING has to happen before Jan 4th if it is to be treated at the lower rate of 17.5% - either invoice, payment or delivery of goods/services.  If in his case a member pays on or after 4th Jan, then none of these has happened before 4th Jan and it must be treated as a payment at the 20% rate.  It is irrelevant how much the member pays or what they think the VAT rate is.

Why not use this as an opportunity to persuade your members to pay sooner?

Thanks Tricia, We will use this as an opportunity to get them to pay their subs sooner, but  they are mostly farmers ,and VAT registered ,- so they're not the easiest group to squeeze money from!