VAT – when 15% should actually be 17.5%

Ray Stewart Bookkeeping, Business, General, Tax Matters, VAT 1 Comment

I just wondered if anyone needed some clarification about actually when to change the rate of VAT they charge.

I know our beloved chancellor said it will apply from 1st December but…

There is an issue you must consider here when you are invoicing for the supply of goods and services.

If you supplied goods and services before 17th November 2008 but invoice them on or after 1st December 2008, you MUST use the 17.5% rate.

If you normally invoice at, say, the end of the month following the supply of goods and services (yes, some people wait that long to bill), you will still need to charge 17.5% VAT.

The reason for this anomaly is that HMRC treat the Basic Tax Point as being when the goods/services are actually made available to the client/customer and it is the basic tax point that determines the rate of VAT you charge.

There is, as with most things, a work around.

Why did I use the 17th November above and not the 1st December? It is because VAT has a little known 14 day rule that can overide the the basic tax point.

If you raise an invoice within 14 days of the supply, the invoice date will be the actual tax point. There is a possibility to extend this 14 day rule to 30 days, but you have to write to HMRC at your local VAT Business Centre and explain why you need an extension and if they agree, nearly all your invoicing can be done at 15% after 1st December 2008.

As ever, a VAT inspection is usually the only time this sort of anomaly crops up but when it does, guess what happens??? You get 2 choices.

  1. you go back to your customer and say sorry, I should have charged you 17.5% not 15% can you stump up the difference please? What if they have gone out of business or just say no….
  2. you pay the difference with no ability to reclaim it.

I have said it before but VAT is the most mis-understood of the taxes and when you get it wrong – it makes more than your eyes water!

~Ray

Ray Stewart
I am a qualified Certified Practising Accountant having passed my final exams way back in 1981. I actually can’t believe that was 33 years ago!! Anyway, I am now in my 50’s and I have been running my own business since May 1983. And before you ask, no, I have never regretted a moment of it! Part of the membership requirements of my professional body now dictate that I spend quite a lot of time on “CPD” - continuing professional education (one of their better ideas) - and over the last two years I decided to study business growth and marketing. I have learnt such a lot and that knowledge has radically changed my old “accountants” approach to business. It has made such a difference to the way I work and operate I feel that I just have to pass on this knowledge. It is simply too powerful to hold back!! - but I will try and do it in simple terms rather than expecting you to spend hours, as I had to, working through the difficult language that trainers seem to use to pass on their concepts. I hope you find the blog a useful resource and interesting place to visit as the months pass. I will do my best to keep up the flow - but if there are any topics you would like me to cover, then please let me know. Ray Stewart
Ray Stewart
Ray Stewart

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