Reverting to the 17.5% VAT rate in Jan 2010

Reversion of the Standard Rate of VAT from 1 January 2010

The purpose of this article is to provide you with a basic understanding of the upcoming changes and most importantly cover the tax point rules and the treatment of deposits and prepayments during the change over.

Attached at the bottom is the full guidance provided from HMRC which covers the different schemes which will be relevant to your clients.

Reversion of the Standard Rate to 17.5%

Before I begin to break down some of the main points from HMRC’s document on the reversion, there is some good news for your clients who run restaurants, pubs and clubs for the 31st of December. It was officially announced that restaurants, pubs and clubs could carry on charging the lower rate until 6AM on New Year’s Day.


Handling mistakes

As the saying goes, “mistakes are part of being human...” so if one of your clients discovers a mistake it can be corrected through the normal procedures by submitting a form VAT 652 (Notice 700/45).

HMRC have stated in their Working Together release that they will be taking a “light touch” approach to errors made that relate specifically to a change of rate issue.

When to start charging
The 17.5% rate has to be charged on sales of standard rated goods and services made from the 1st of January and should be used on all invoices issued on or after this date.

Special rules

There are special rules for supplies which span the change of rate. If the goods or services are provided before the 1st of January but the invoice is raised after that date then under the change of rate rules the 15% rate of VAT can be charged. The change of rate rules are optional.

Tax point rules


The normal rules:



Basic Tax Point

The basic tax point takes place when goods are removed or made available to the recipient and the date services are performed.

Actual Tax Point
Either the date of:
a) Issue of the invoice if it is before the basic tax point or up to 14 days after the basic tax point.
b) Payment if it is before the basic tax point


Applying the tax point rules on the 1 January 2010

Where a tax point occurs before 1 January 2010 the supply (or the part of it covered by the tax point) will remain liable to VAT at 15%. Tax points occurring on or after 1 January 2010 will be liable to VAT at 17.5%.

In many cases there will be a single tax point for example the customer of a retailer enters a shop to purchase an item for which they pay cash and take away with them.

Where two or more tax points have been created for example where a deposit is received before 1 January 2010 it will be liable to 15% VAT but the VAT on the deposit can be increased to 17.5% under the special change of rate rule (see section 3 of the guidance) or if the anti-forestalling legislation applies (section 11).

If the goods are not delivered and the remaining balance of the price is not invoiced or paid for until or after 1 January 2010 then the rate of 17.5% will apply when it comes to accounting or the remaining VAT that is due.

What I need to declare on my tax return

Many people don't realise that they need to declare all income on their personal tax returns even if tax has already been stopped.

The top three items people miss are:

1. Interest on bank and savings accounts ( But not ISA accounts)
2. Pensions received
3. Salary from employment

Remember all income has to be declared on your tax return. You also add the tax alrerady paid.

Your then calculate the tax due on you total income, take off the tax already paid and this leaves you with the tax still to pay or in some cases refunded.

Don't Leave it to the Last Minute

The filing deadline for Self Assessment Tax Returns is 31st January.

Each year a huge number of people leave their tax returns right until the last minute.

But consider the disadvantages of doing this:

• You will not know you tax bill until the last minute leaving you very little time to save up to pay it.
• If you find information is missing you have all the stress of rushing to try and replace it.
• We accountants may not have enough time to work to reduce you tax bill because we don't have the time to ask you all the right questions. There's no time to ask you to go and check things.
• Because it is peak filing season many accountants will charge a premium to help you.
• HMRC help lines are busy and overstretched.

So why do people leave it to the last minute?