Most readers will already know that the rate of VAT will increase back to 17.5% with effect from 1 January 2010. Complications will typically arise where the various “tax points” for a supply span the date of the change.
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. However a further concession exists 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 may choose to adopt the normal rules and simply charge the 17.5% rate on the entire invoice value, or can instead 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. Private customers who are aware of this are sure to request this treatment! However a condition of using this approach is that the apportionment can be justified on the basis of measurable work, so detailed records are essential.
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”. Accountancy services are a good example. There is no “basic” tax point in this situation, only an actual tax point which is most likely to be created by the raising of a tax invoice. The issue here will arise when an invoice is raised after 1 January 2010 to a non VAT-registered customer for a period which spans the change in VAT rate. The obliging customer will have paid in advance to create a tax point at the 15% rate, however it is more likely that the customer will request that the apportionment procedure should be applied to the invoice as described in the previous paragraph.
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, once you have finalised all of your January sales shopping in December.