VAT Rate Change
History
What could change?
Rate of Standard or Reduced Rate
Change of standard rate to 20% is predicted
VAT Liability
Speculation some items could change from zero to reduced rate.

VAT on sales / purchases
VAT on acquisitions
What VAT rate do I use?
Use the VAT rate in force at the time of supply (tax point)
The normal time of supply rules apply
Basic Tax Point:
Goods - “removal” or when “made available”
Services - completion
Actual Tax Point:
Earlier of invoice or payment if before BTP
Invoice if issued less than 14 days after BTP
Exceptions
Land; heat, light, power; sale or return; business assets..

Change of rate provisions
Supplier may elect for time of supply to be taken as the Basic Tax Point instead of Actual Tax Point
Election may be made per supply or on all supplies.
Can be used where rate goes up (by electing to use an earlier BTP)
Can be used where rate goes down (by electing to use a later BTP)
Where election is made after invoice has been issued credit notes and replacement invoices must be issued within 45 days.

Acquirer may elect for time of supply to be the date of removal of the goods.
Cannot be used for self billed supplies or goods sold in satisfaction of a debt.
Anti-forestalling
Historically, one of the reasons for the short notice of VAT rate rises has been the desire to minimise VAT avoidance through "forestalling" - the artificial advancement of the time of supply into the period with a lower VAT rate.
The Supplementary Charge
Supplementary 2.5% VAT charge applies to supplies of goods or services where
The supply spans the date of the rate change (specifically 1 Jan 2010 in current drafting);

It is subject to the standard rate;
Customer cannot claim some or all of the VAT; and
One of the following “Relevant Conditions" is met.
Invoice or payment creates an actual tax point before the rate change; and
Basic tax point is after the rate change (special rules for listed supplies)
The Relevant Conditions
A) Supplier and customer are connected during any time from date of supply to date of VAT change; or

B) “Relevant” consideration for supply and related supply of goods or services is greater than £100,000; or

C) Supplier or connected person finances a prepayment

D) Supplier issues VAT invoice that isn’t payable for mare than 6 months.
For supplies of goods, and services other than....
supplies of the right or option to receive goods or services 
Relevant conditions A to D apply
Relevant conditions A to C apply
The Exceptions
The charge does not apply to the lease, hire or rent of an asset if the invoice covers a period of up to 1 year and is in accordance with normal commercial practice.
The charge will also not apply to any supply where (B) is the only relevant condition met and the invoice / payment is in accordance with normal commercial practice.
Listed Supplies
VAT Returns
These rules do not affect the timing of VAT declarations and VAT must declared on the appropriate VAT return as normal.
For the purpose of the charge, there are special rules for determining the basic tax point of “listed supplies”

Listed supplies includes:
Services
Major interest in land
Water
Gas
Power, heat, refrigeration, ventilation
Construction services

Rules seem particularly obtuse.

The anti-forestalling legislation provides that, for the purposes of listed supplies, the basic time of supply occurs at the end of the period to which an invoice or payment relates. Therefore, if a payment is received, or a VAT invoice is issued, before 1 January 2010 for a listed supply, covering a period ending on or after that date, the supplementary charge will be due. 
However, this rule is modified if the period covered by the VAT invoice or payment includes more than one billing period. In that case, the end of the billing period becomes the basic time of supply for the goods or services provided in that billing period. In such cases, the consideration for the listed supply (i.e. the payment or VAT invoice amount) must be apportioned, on a just and reasonable basis, between the billing periods concerned. This ensures that no supplementary charge arises in respect of goods or services provided in billing periods which end before 1 January 2010.

Input VAT & Credit Notes
Purchasers should recover VAT at the rate shown on purchase invoices.
In the case of retail receipts that don't show VAT, input VAT should be claimed at the rate in force on the date of the receipt / tax point.
Credit notes should be issued showing VAT at the rate in force at the time of the original supply.
- Remember, where the customer can recover VAT in full, parties can agree for credit notes to be issued without VAT, avoiding any confusion about the VAT rate.
Retailers
Pricing - Displayed price is usually VAT inclusive.
Display - Trading Standards regulations require correct prices to be displayed
A period of up to 28 days is allowed during which ticket prices may be out of line. Clear instore signing is require.
How is re-pricing done?
EPos Systems - Does the system allow VAT rate to be changed easily?

HMRC has in the past, allowed retailers trading through the rate change (eg pubs, etc) to continue using the old rate until the close of that trading period or a 6am cut-off.
Others
Coin Operated Machines - The usual concession treating the time of supply as the date of emptying the machine does not apply. Income should be apportioned between VAT rates.

Advanced invoices for continuous supplies of services – Invoices issued in advance must be re-issued for any tax points falling after the rate change.

Fuel Sclae Charge - VAT amount will change
Contracts
Where a contract has been agreed prior to the rate change, unless it is specifically precluded, the price is automatically adjusted to account for a rate increase or decrease.
This applies equally to leases as any other contract.
Preparation - Purchasers
Bring forward purchases
Check contract provisions regarding prices
Opportunities
Invoice / Request Payment early - clients could save money  by paying earlier
Watch the Flat Rate Scheme percentages - they will change.
Paul Taylor & Karen Killington
June 2010
http://bit.ly/vatratechange