Changes to the standard rate of VAT The

Changes to the standard rate of VAT

The standard rate of VAT will be increased from 17.5% to 20% for goods and services supplied on or after 4 January 2011. The increased rate will apply to acquisitions and importations taking place on or after that date.

Anti-forestalling legislation

Legislation is being introduced to target artificial arrangements entered into before 4 January 2011 attempting to apply the 17.5% rate for goods supplied or services performed on or after that date. This will ensure that such arrangements entered into before the rate increase will suffer the new 20% rate.

The supplementary charge

Where arrangements are entered into to apply the 17.5% rate for goods or services to be delivered or performed on or after 4 January 2011, a supplementary charge of 2.5% will be due in the VAT period covering 4 January 2011.

This applies in 2 sets of circumstances: –

1 The customer cannot recover all the VAT and one or more of the following apply:

• The supplier and customer are connected parties
• The supplier, or a connected party, funds the pre-payment
• The value of the supply exceeds £100,000 but see exclusions below.*
• An advance VAT invoice is issued where payment is not due in full within 6 months but see exclusions below.**.

Exclusions for normal commercial practice
*This does not apply where if the prepayment or the issue of a VAT invoice is normal commercial practice.

** Except for hire purchase invoices issued in accordance with normal commercial practice

2 There is the grant of a right or an option and one or more of the following apply: –

• The grantor and customer are connected parties.
• The consideration for the grant of the option exceeds £100,000
• The supplier or someone connected to the supplier funds the payment for the right or option.

Exclusions for normal commercial practice

Does not apply to prepaid or invoiced rentals of land, buildings or other assets if:

• the period is one year or less and
• the issue of an advance invoice is normal commercial practice

Impact

It is unlikely to affect suppliers conducting their business as normal where no VAT increase is anticipated.

Zero rated supplies and supplies subject to VAT at the reduced 5% rate remain unaffected

If you require further guidance on any VAT issue please contact us on 020 7330 0000

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