Standard rate VAT change, the first for 17 years
How has your business been affected?
The majority of small businesses have been affected by the change in the rate of VAT. The change in the standard rate of VAT from 17.5 per cent to 15 per cent came into force on 1 December last year and for many businesses has been an administrative hassle.
This is the first change in the standard rate of VAT for over 17 years. It is up to you whether you reduce your VAT inclusive prices to reflect the lower VAT rate. The government has encouraged businesses to pass on the benefit of a lower VAT rate to customers by lowering prices, but you do not have to do so.
If you are a retail business that does not issue till receipts that identify VAT separately, you can continue to use these as before.
If you issue receipts that identify VAT, you have to change your systems (which might include changes to your tills and accounting systems) so that receipts reflect the new VAT rate. Similar changes will need to be made to any invoicing systems.
It is very important for businesses to correctly identify the date of sale for VAT purposes, or ‘tax point’. This is usually the earliest of the date the goods were delivered to the customer; the date payment is received or the date the invoice was issued.
However, the delivery date and date of payment can be overridden by the invoicing procedures of the business. Under the VAT rules, if the invoice is issued within 14 days after these other dates, that date becomes the ‘tax point’ for VAT.
When it comes to paying VAT to HM Revenue and Customs, you need to split the calculation of how much VAT you owe. You should do one calculation, as you would normally, using the old rate of 17.5 per cent, for sales made up until 30 November and another calculation, using the new rate of 15 per cent, for sales made from 1 December onwards. The totals are then added together and entered on the normal VAT return form in the usual way. The important thing is to keep track of what sales you make up until 30 November and then from 1 December onwards.
If you are using a flat-rate scheme, your VAT rate will also change.
