Tax Talk - Prepare for the VAT rate rise!
For a supply of goods, there is a “basic” tax point at the time that the goods are delivered to/ collected by, or are in some way “made available” to, the customer. However this basic tax point will, in normal circumstances, be overridden by an “actual” tax point, which will be:
● the date of payment (where the customer makes payment in advance); or
● the invoice date (where the supplier issues a tax invoice either before, or
within 14 days after, the basic tax point).
But where the basic and actual tax points occur on either side of 1 January 2010, the supplier can elect (on a transaction by transaction basis) to determine the VAT liability by reference to the basic tax point, if this produces a VAT charge @ 15%, rather than 17.5%, for the customer.
For a supply of services, in general the same tax point rules as above apply (with a basic tax point being created on completion of the service). The same election as above is available where the tax points span 1 January 2010. Furthermore, where both the basic tax point and actual tax point occur after 1 January 2010, but the relevant work began before that date, the supplier can charge output VAT at the 15% rate on that part of the work completed before 1 January 2010, and at the 17.5% rate on the part completed after the rate change, provided that the apportionment can be justified on the basis of measurable work.
Where the supplier is acting for his client on an ongoing basis under an open-ended contract, it is likely that he will be regarded as providing “continuous services” with no basic tax point. When an invoice is raised after 1 January 2010 for a period which spans the change in VAT rate,
the apportionment procedure as described in the previous paragraph can be applied.
With all this fun waiting in store for the beginning of 2010, may we be the first to wish you all a happy new year!
For more information please contact Julian Millinchamp on 01242 237661 or email tax@hazlewoods.co.uk
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