Return to 17.5%

December 2009

VAT basic rate returns to 17.5% on the 1 January. If you trade in goods and services there are two possible circumstances when you might be able to invoice after the 1 January at the lower 15%. Basically:

1. If you supply goods or services before 1 January, or
2. If you receive payment for goods or services before 1 January

You may be correct in invoicing after the 1 January and applying the 15% rate.

This may also affect traders who have partly supplied work before the end of the year but the work is completed and invoiced in 2010 – a split, perhaps time apportioned, supply would be appropriate. The pre 1 January sales value taxed at 15% the balance at 17.5%.

Readers may also like to read the following notes:

The VAT fraction to use when an invoice includes VAT and you want to know the VAT figure within the charge is 7/47 with a rate of 17.5%. Example - £235 including VAT – VAT amount is £235 x 7/47 = £35
If you want to increase prices to pass on the VAT increase to customers (e.g. if you are a retailer), then the mathematical formula is to multiply the current VAT inclusive price by 47/46. Example - £115 x 47/46 = £117.50
Don’t forget that any credit note or refund given to a customer is based on the same rate of VAT that was charged on the original sale. The same principle applies to VAT claimed on bad debts.
Example – goods bought on 1 December are returned on 5 January and a full credit note is given. The credit note will adjust VAT based on 15% i.e. the same rate of tax that applied when the goods were bought the previous month.
If you use the flat rate scheme, the flat rate percentages will change on 1 January. You must not assume that the same flat rates will apply as when we were last at 17.5% VAT up to December 2008.