VAT Rates Reduced

As predicted the standard rate of VAT is to be reduced from 17.5% to 15% with effect from 1 December 2008. The bad news is that this is to return back to 17.5% from 1 January 2010. The change is only to the standard rate with the zero rate and reduced 5% rate seeing no change.

There is much speculation as to whether the reduction will help the economy and give it a well needed boost, however most people generally consider that it will not make that much difference to the man in the street. The person in the street who it is going to make a huge difference to though is the business owner who has got to deal with the headache of introducing the changes to his/her business in just a week. This is likely to mean the re-printing of price tags or new catalogues for some so actually introduce a further cost.

VAT registered business will need to consider how they account for their VAT. Those under the cash accounting scheme face the problem that they will be receiving payments after 1 December that will need to be accounted for at the two different rates depending upon the date of the supply, the tax point. Supplies made before the rate change will still need to have VAT accounted for on them at 17.5%.

The reduction in the rate also has a number of consequences to other VAT schemes which are in place for example the VAT Fuel Scale charge rates will need to change, details of the new rates can be found on our web site. The flat rate scheme also sees a change in all of its rates again details of which can be found on our web site.

The main emphasis for businesses will need to be ensuring that their accounting system deals with the changes correctly. If you are unsure how to change your system seek advice from either your software supplier or accountant.

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