November 2008 Pre Budget Special

Points to Ponder – Pre Budget Special

Let the nightmare begin!

Welcome to our forty fifth newsletter issued in November 2008, and is a special interim issue. If you would like a copy of any past newsletters, please call and we can either send or e-mail them to you.

This is a special issue newsletter, dealing with the sudden change in VAT.

From 1^st December 2008, the standard rate of VAT is being reduced from 17.5% to 15% for all sales made from that day onwards, with some exceptions. Some other rates of VAT are unchanged – basically the zero rate, the reduced rate on domestic heating fuel etc. and exempt supplies. Some Flat Rate Scheme rates are changing and it seems likely that this will have an adverse effect on most users. This reduction in the rate of VAT is only effective for 13 months. CALL US FOR GUIDANCE.

Retail sales. (No VAT invoices issued)

Apply the new rate on all till takings from 1^st December 2008 – except for goods that were delivered prior to 1^st December, in which case the old rate applies.

Sales requiring a VAT invoice.

Use the new rate on invoices issued on and after 1^st December 2008 – except when the goods or services were supplied before 18^th November 2008, when the old rate applies. Part payments made before 1^st December will also be subject to the old rate, regardless of when the final invoice is issued. However, if the payment was a deposit against work to be carried out after 1^st December 2008, you can choose to charge the old rate or the new one.

VAT-inclusive sales

The new “VAT fraction” to calculate the amount of VAT included in a sale is 3/23, the old rate was 7/47.

Sales that span the change in rate and continuous supplies.

There are special rules for these and if you think you are affected, please call us.

Tills and accounting methods.

You must ensure that your recording of till and book-keeping transactions can cope with the change. We understand that some programmes may change all previous entries if the wrong report parameters are used.

Keep the difference.

Retailers do not have to pass the reduction on to their customers. It is their decision.

Cash Accounting

You must ensure that VAT charged at 17.5% on invoices issued prior to the change is still accounted at that rate when you receive payment for that invoice.

Flat Rate Scheme

Some rates have changed, others haven’t. If you operate this yourself, please check either with us, the VAT office or the Government website to confirm what rate you must apply from 1^st December 2008. Remember you must still consider the date the invoice was issued, if you are on a FRS and use Cash Accounting. If it is better to come out of this scheme now, HMRC must be informed in writing.

Margin Scheme for Secondhand Items.

The new rate is effective from 1^st December 2008 and makes no other impact on your calculations.

Excise Duty increased to compensate for reduction in VAT

You’ll pay the same for your fuel but the VAT reclaimed is reduced – more costs.