Pre-Budget Report VAT Highlights

December Tax Alert

VAT Rate reduction to 15%

This was the major VAT change announced in the pre-budget report. The rate reduction applies to all supplies of goods and services supplied after 1 December 2008.

The major gain is for consumers who suffer the VAT charge. Businesses may see a slight reduction in the cash flow impact of VAT; the quarterly bills will reduce marginally. Unfortunately businesses will have to bear the cost and inconvenience of the administrative changes.

We have set out below a few tips for VAT registered traders.

The VAT fraction for 15% rate. If you want to calculate the VAT included in a VAT inclusive amount, multiply the total by 3/23.
Adjusting prices. If you want to pass on the full VAT reduction to your customers multiply the pre 1 December price by 46/47. Ie. £117.50 becomes £115.
Credit Notes. If you raise a credit note after 1 December 2008 that relates to goods or services supplied before that date – the credit note should bear the same rate of VAT as the original charge, in most cases 17.5%.
Flat Rate scheme. Thankfully HMRC have reduced the percentage rates in line with the main rate reduction. The adjusted rates for use after 1 December 2008 can be found on pages 43 and 44 of a downloadable file which you can access at: http://www.hmrc.gov.uk/pbr2008/vat-guide-det.pdf
Cash Accounting. If you receive payment from your customers after 1 December 2008, for sales prior to this date, you must pay over the amount of VAT added to the relevant invoice(s) – for most taxable supplies up to 30 November 2008 this will be 17.5%.
Road Fuel Scale Charges. This charge recognises the fact that some road fuel will be used for private rather than business motoring. You can access the new rates which apply from 1 December by accessing the same download mentioned in the flat rate scheme note above.

If you need our help in dealing with any of the changes, including the changes to your accounting software, please call.