How the VAT changes will affect you
Tax Point
One of the important principles we need to discuss first is the VAT tax point. This is the point in time that determines what rate VAT is charged, based on the time the goods or services are supplied.
For example, if you provide a service in December but don't raise the invoice until after 4 January 2011, then the VAT tax point would be December and you would charge 17.5% VAT.
If however you provide a service after 4 January, then the tax point would be during the new rate and you would charge VAT at 20%.
Finally, if you start providing a service in December and do not finish this until after 4 January, then you would have to apportion your time between the two VAT rate periods and would charge part of it at 17.5% and the rest at 20%.
Standard Invoice Accounting
For those of you on the standard invoice accounting, you would simply start charging VAT from 4 January 2011 at 20%.
If you receive purchase invoices after this date that are in respect of goods or services that you bought before 4 January, then you need to satisfy yourself that your supplier has charged VAT at the correct rate, and provided they have, you would reclaim the VAT on the basis of what is on the invoice.
If you have a computerised accounting system, you should receive guidance from the software supplier explaining how to change the standard VAT rates. If you don't let us know and we will see if we can help.
If you use spreadsheets, the VAT fraction you use to work out the VAT will change from 7/47 to 1/6.
If you require any assistance in changing more complex spreadsheets, try talking to Sean Blessitt of Astradyne
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