15% VAT Changes 2008-2009

You will no doubt be aware that the standard rate of VAT is being reduced today, 1 December, from 17½% to 15%. To help you implement this change, we are writing to all our VAT registered clients, and hopefully you will forgive this impersonal email. H M Revenue & Customs (HMRC) have issued a helpful 4 page letter to all VAT registered businesses – if you have not received one, you can access it on their website - http://www.hmrc.gov.uk/pbr2008/vat-guide-sum.pdf.

The key points to note are:

• Only the standard rate of VAT has been changed. There are no changes to zero rated and lower rated (5%) goods and services, nor are there any changes to the VAT treatment of exempt supplies.
• The relevant fraction for calculating the amount of VAT on VAT-inclusive items changes from 7/47ths to 3/23rds.
• Care needs to be taken with supplies made just before or just after 1 December. More details are at the foot of this page, or please refer to the VAT help sheet which can be accessed from HMRC’s website: http://www.hmrc.gov.uk/pbr2008/treatment-sales.pdf
• Care also needs to be taken if you use cash accounting to account for your VAT. Again, more details at the foot of this page.
• If you use the Flat Rate Scheme, the rates will change with effect from 1 December. For a complete list of the new rates, see Pages 43 and 44 of the detailed VAT guide published on http://www.hmrc.gov.uk/pbr2008/vat-guide-det.pdf
• You can still claim back 17½% VAT if you are charged at the old rate.
• For VAT returns that end on 31 December or 31 January, you will need to include VAT that is charged or claimed back at both rates.
• New fuel scale charge rates come into effect on 1 December 2008. Details are shown on http://www.hmrc.gov.uk/pbr2008/vat-guide-det.pdf, Pages 40, 41 and 42.
• The new VAT rate of 15% will only last until 31 December 2009, at which time the standard rate will revert to 17½%

If you use electronic methods to record your transaction, changes will need to be made, preferably as soon as possible after you open for business today. Further details at the foot of this page.

We are here to help you implement these changes, and please do not hesitate to contact us if you are in any doubt about what to do.

Please also remember that if you do make a mistake, small errors can be corrected on the next VAT return. If you make a large error (more than £2,000 of VAT), this can be disclosed separately without penalty, although interest will normally be charged if you have underpaid VAT.

We hope you find this information helpful, if you do require any assistance with these VAT changes or VAT in general then please do not hesitate to contact David Meredith, Andy Wilson or Carolyn Gore, details are on our Contact Us page.

More info... Supplies near 1 December 2008
More info... Cash Accounting near 1 December 2008
More info... Changes to Computerised Systems