VAT's going up Q&A
Q1: What rate do you use on an invoice if services are provided prior to 31 December 2010 but the invoice is issued after the rate change (i.e. on or after 4 January 2011)?
A1: The simple answer is that the supplier can choose which rate of VAT it applies in these circumstances. The basic tax point for services is when those services are performed. Therefore, for services provided before 31 December you would expect the 17.5% rate to apply. However, basic tax points can be overridden by actual tax points; being either the receipt of payment in advance or the issue of an invoice within 14 days of the supply being made. In the above example, provided the invoice is issued within 14 days of the services being supplied, you would ordinarily apply the 20% rate. That being said, HMRC have stated that in these circumstances the suppliers can choose whether they apply the 17.5% or 20% rate.
Q2: What VAT rates apply to continuous supplies of services?
A2: VAT will be due at the rate applicable at the time of supply, i.e. the earlier of date of invoice or date of payment. However, suppliers may account for VAT at the different rates for the portion of supplies performed prior to and after the VAT rate change. If you, as the supplier, do choose to apply this treatment then you will need to account for VAT according to the value of the goods/services provided before and after the rate change.
Q3: What do you do if the supply that you make spans the rate change?
A3: Where the supply spans the rate change but the tax point is not triggered until on or after 4 January 2011, VAT would ordinarily be due at 20%. However, as with continuous supplies, the supplier can choose to apply the 17.5% rate to the portion of the supply that was made before 4 January and 20% to the remainder.
Q4: Does the supplier or the customer make the decision to opt to apply the special rules and invoice at 17.5% for sales that span the change?
A4: It is the supplier that determines which rate of VAT it will apply.
Q5: Could you describe a little around when credit notes are issued post 4 January relating to invoices pre-4 January 2011?
A5: Credit notes in relation to invoices issued prior to 4 January should show the VAT rate that was applied on the original invoice.
Q6: What if I receive an invoice with the wrong VAT rate? Can I deduct the VAT in my VAT return?
A6: You are only able to deduct the amount of VAT that should have been charged. If you consider that the incorrect rate has been applied (say 20% instead of 17.5%) then you should contact the supplier and ask them to issue a credit note and issue a new invoice with the correct rate. If they have charged 17.5% when it should have been 20% then HMRC will only allow you to recover the VAT actually shown on the invoice.