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The jury is very much still out on whether the reduction in the standard rate of VAT on 1 December 2008 has provided any stimulus to the economy whatsoever. Given that one Labour MP is quoted as describing the measure as being akin to “spitting at a hurricane”, it is hard to escape the conclusion that any benefit to the general public is likely to have been “de minimis” (to borrow terminology from another area of VAT). What the measure certainly did achieve was a boost to the workload of accounts departments and VAT advisers, who found themselves having to grapple with many subtle (and, dare one suggest, unforeseen) complications created by this apparently “simple” change to this so-called “simple” tax.
Solicitors were certainly not immune from these added pressures. Those involved in legal aid work were faced with the LSC issuing guidance in December about the treatment of VAT on disbursements, then altering that guidance in January. Other solicitors will have had to deal with requests from clients that any interim invoices issued prior to 1 December should be credited and re-issued at the new VAT rate (provided the nature of the supply was a single service that had yet to reach completion). In fact, many clients will have seized on the brief, and frankly unhelpful, statement contained in one of the HM Revenue & Customs’ Releases that “If you are a solicitor most of your supplies are covered by the normal tax point rules including a tax point on completion of the work” to request the aforementioned treatment, even where the solicitor was in reality making a continuous supply of services, in which case there was no scope for amending the VAT rate on invoices previously issued. The lack of detailed content in the HMRC Manuals as to the distinction between single and continuous supplies (beyond the basic guidance that the latter are characterised by the “ongoing nature of the supply” (obviously!) and the “existence of a contract” (which need not be in writing) was not helpful in providing unambiguous advice.
And of course, it will all happen again at the end of this year, but in reverse. Presumably, where clients are being provided with a single service, many will request that interim invoices are issued prior to 1 January to benefit from the lower 15% rate. Alternatively there may be added pressure on solicitors to complete matters during December so that a “basic” tax point is created at the lower rate. And where the solicitor’s service is in the nature of a continuous supply, again there may be pressure to raise invoices during December, or (where invoices are not issued until after the rate change) to provide a split of the work done on a time basis so that the old and new rates of VAT can be applied accordingly. To add to the fun, all of this has to be done with half an eye on the “Anti-forestalling” legislation, the first draft of which has now appeared on the HMRC website.
May I wish you all a peaceful Christmas!
In the meantime for further information please contact Julian Millinchamp on 01242 237661 or email julian.millinchamp@hazlewoods.co.uk.
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