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.
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Use same rate as original transaction
In Tony's absence, I referred back to last week's guidance from Abbeytax, which advises (based on HMRC instructions): "Business should apply the same rate as originally declared for refunds or credit notes." (item 4 in the introductory "Rate change basics" box at the top of the page).
For ongoing advice, discussions and debate, keep an eye on AccountingWEB.co.uk's VAT rate change page, which also includes some leftovers from the switchover at the beginning of 2010.
Credit Notes
Tony, what are the rules for credit notes and refunds? It can get tricky if a customer pays an amount before a vat change then returns goods after 4th January.