VAT switch: tax point rules clarified
Tony Jackson takes a look at the rules for deciding which VAT rate to apply on invoices issued around the time of the rate increase.
Most people are aware that the standard rate of VAT increases to 20% from 4 January 2011, but not everyone is clear about how the VAT rules work where invoices are raised or payments are received around that date.
It is the ‘tax point’ which is important. The ‘basic’ tax point is when the supply of goods or services actually takes place, but the tax point is brought forward if an invoice is issued or payment is received before this date; or it is later if the invoice is issued within 14 days of the basic tax point.
Therefore, where a supply has its basic tax point before 4 January 2011 but the invoice is raised on or after 4 January 2011 (but within 14 days of the supply), the rate applicable will be 20%.
Consult AccountingWEB.co.uk's VAT rate change page for further guidance and debate on the 4 January switchover.