VAT - reversion to the standard rate of 17 1/2 %

1 January 2010 sees the return of the standard rate of VAT to 17 1/2 %.  It will be the first time the standard rate has increased in almost two decades although it would be a a brave man who would bet on it being another two, let alone another 20, years before we see another hike.

The HMRC guidance on the change for VAT registered businesses is here.

In certain, limited circumstances, efforts to circumvent the increase from 15% to 17 1/2 % will be countered where transactions take place after 24 November 2009.  Where these anti-forestalling rules bite, a supplementary charge of 2 1/2 % VAT on the value of the relevant supply will be due for the trader's return period covering 1 January. 

For the supplementary charge to apply, the following criteria must be met:

• The recipient of the supply is not entitled to an input credit, or to a refund or repayment, for all of the VAT charged, and

• The supply is standard rated, and

• The supply takes place after 24 November 2008, and

• The supply spans 1 January 2009, and

• One, or more, of the relevant conditions is in point.

The relevant conditions are:

• The supplier and customer are connected (within ICTA 1988, s.839).

• The consideration for the supply exceeds £100,000, before VAT.

• A prepayment was financed, directly, or indirectly, by the supplier.

• Payment is not due until 6 months, or more, after the issue of a VAT invoice.

HMRC guidance on the anti-forestalling provisions is here and the legislation here.