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How the VAT changes will affect you

Flat Rate Scheme

For those of you on the flat rate scheme, you would start charging VAT from 4 January 2011 at 20%. You would also need to select a new flat rate percentage from the table on the HMRC website at :

For sales invoices raised before 4 January 2011 you would apply your current flat rate percentage and for sales invoices after this date you would apply the new percentage.

If you are on the cash accounting scheme along with the flat rate scheme, please contact us for the more specific guidance that you will need.

Non-VAT registered businesses

Businesses that are non VAT registered have two issues to consider:

1) Are there any significant purchases that are planned short term and is it worth bringing forward a purchase to before the VAT increase to save some money

2) Perhaps this is the time, particularly if you are dealing with B2B (business to business) customers that you should review whether it is worthwhile voluntarily registering for VAT. If you would like help with this decision, please do not hesitate to contact us.

Remember that when your turnover for the last rolling 12 month period exceeds £70,000 you have to register for VAT unless you are supplying goods that are outside the scope of VAT.

Anti Avoidance

There is always going to be instances where people might raise an invoice with a December date to ensure that their customers will be charged at the old, lower VAT rate rather than the new one, however HMRC are wise to this.

There is no problem with bringing forward work for non-VAT registered customers to ensure that they will benefit from being invoiced at 17.5%, provided that this is legitimately done.

For business to business customers where the VAT is recoverable, this rate increase is simply going to be a cash flow issue as they will have to pay the extra 2.5% on your invoices, but will be able to reclaim it on their next VAT return.

Should there be the prospect of a HMRC VAT enquiry, what they would look at is sales around the VAT rate change. If there is a bumper December and a sparse January, then this would raise questions. For the VAT at stake, it is not worth the potential HMRC penalties to try get around the rate increases.

The best advice we can give is to harness the next three weeks dependant upon your business as an opportunity to get additional sales through before the rates increase.

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