You are here: VAT » Changes to the standard rate of VAT
A Summary of the Changes
Dr Paul Thomas explains
1st of December 2008
Following the pre budget report and the cut in the standard rate of VAT to 15% from Monday 1st of December, the DDA thought it would be useful to summarise the changes and provide some guidance on how to deal with the changes on your software.
This does not affect any NHS receipts which are either exempt or zero rated but does, of course apply to private supplies and all purchase invoices which must be treated according the the rate shown on each invoice.
When is the VAT rate change effective?
The new rate of 15% should be used on all standard rated private sales invoices raised on or after 1 December 2008, EXCEPT if you provide goods or services more than 14 days before you raise the VAT invoice (goods or services provided before 18 November, but invoiced on or after 1 December), then your sale took place before 1 December and the old rate of 17.5% must be used.
You were paid for private standard rated services or sales before 1 December, then the old rate of 17.5% must be used.
For cash sales, the new rate of 15% applies for all takings received on or after 1 December, EXCEPT where the customer pays for something they took away or you delivered to them before 1 December (e.g. if the customer has an account with you), then your sale took place before 1 December and the old rate of 17.5% must be used.
You will also need to ensure that the cash registers used in your practice are updated to reflect the change in VAT rate with effect from 1 December.
For further guidance on how to apply the changes for your business, please see the guidance notes from HMRC
Do I need to do anything different for purchases?
You may receive invoices in December relating to goods or services delivered or provided before 18 November. These invoices should have a VAT rate of 17.5% on them and this can still be reclaimed by you.
If you receive services on a continuous basis and make payments regularly or from time to time, there is a tax point every time you:
receive a VAT invoice; or
make a payment, whichever happens first.
If payments are due to be made at regular intervals (for example, by banker’s order or direct debit), you should be issued with a VAT invoice at the time each payment is made. As a customer, you should not reclaim any VAT shown on the 'request for payment' until your payment has been made and you have been issued with an appropriate VAT invoice. You will be aware that many accountants raise their invoices on a 'continuous supply' basis and do not issue VAT invoices until payment has been made. As a consequence, any fee notes raised by prior to 1 December and not paid until on or after 1 December will result in a reduced rate of VAT being applied to that shown on the original fee note.
Is there any change to the de minimis limit of £7,500 per annum/£625 per month for partial exemption calculations?
There are no changes whatsoever in this area.
The practice purchases fuel on behalf of the partners; are there any changes to the fuel scale charges?
The VAT on the fuel scale charge will also change to 15%. The rates to be applied can be found at Annex D on the following HMRC document: http://www.hmrc.gov.uk/pbr2008/vat-guide-det.pdf
How do I amend Sage or Iris for the change in VAT rate?
The simplest way of implementing the change is to change the T1, T3 and T5 tax rates. This is a global change that will affect all postings from the date it is done.
If you raise invoices on Sage, ensure that you have processed and posted all of your November sales invoices before changing the VAT rate.
To change the VAT rate:
1. Go into Settings along the top of the screen.
2. Select configuration (it may say this option cannot be done with other windows open and will ask if you want to continue, click 'yes').
3. Select the tab called 'Tax Codes'.
4. Select the T1 tax code and click 'edit'.
5. Change the rate to 15% and click OK.
6. Follow the above procedure to change the T3 and T5 tax codes.
7. Click 'apply' and then 'close' (answer 'no' to the question 'do you want to save?').
To ensure Sage has completed this correctly, follow steps 1 - 3 and the amended T codes should say 15%.
If you use any other T codes for standard rated purchases you will, of course, have to amend these as well.
If you receive any purchase invoices relating to November (or December invoices for goods or services provided before 18 November), then when entering on Sage you will need to over-type the calculated VAT amount with the actual amount on the supplier invoice.
Date Enter date here
In order to reflect this in the Iris GP accounts software you will need to add a new VAT rate:-
1. Go to set up menu.
2. Choose to alter VAT settings.
3. Choose to add a new VAT code.
4. Then you need to enter at VAT rate 15.0 then shortcut T description STD15.0.
You will then need to amend any memorised items so that the software automatically picks up the new rate.
In respect of the VAT paid on your purchases continue to input this as it appears on the invoice you are paying. If the invoice is dated prior to the 1 December 2008 the VAT rate will still be 17.5% and you will need to claim this in full. After this date your invoices should be charged at 15%. Therefore the VAT disclosed on your accounting software must reflect what the VAT is as per the invoice regardless of when it is paid.
When a transaction is posted the VAT rate is selected from a drop down box. Therefore once a new VAT rate is added the old rate can still be selected if required.
The changes to Iris should be straight forward to apply from Monday however the first bank income postings may have some transactions at both VAT rates and the transactions would need to be put in separately for each rate. The different rates may be more easily spotted if the practice has amended standard fees from the 1 December 2008.