Why is nothing ever simple?! We all know the standard rate of VAT increased from 17.5 per cent to 20 per cent on 4 January 2011. However, it’s clear that some businesses are confused about what invoices to apply the new rate to.

For any sales of standard-rated goods or services that businesses make on or after 4 January 2011 they must charge VAT at the 20 per cent rate. So far so clear. The problem lies with sales that span the change in rate. We’re advising our clients to gain specialist advice in these circumstances. There are special rules for sales which span the change of rate. If you provided goods or services before 4 January 2011 and raised a VAT invoice on or after that date you can choose to account for VAT at 17.5 per cent. You don’t need to tell HM Revenue & Customs if you do this.

But there are special rules for Services you started before 4 January 2011 but finished afterwards. If you started work on a job before 4 January 2011 but finish afterwards you can account for the work done up to 3 January 2011 at 17.5 per cent and the remainder at 20 per cent. If you choose to do this you will have to be able to demonstrate that the apportionment is “fair”.

And another thing! If you provide a “continuous supply of services”, such as leasing of photocopiers, you should account for the VAT due whenever you issue a VAT invoice or receive payment, whichever is the earlier. You must charge 20 per cent on invoices you issue and payments you receive on or after 4 January 2011. You may, if you wish, charge 17.5 per cent on the services you provided in the period up to 3 January 2011 and 20 per cent on the remainder. If you choose to do this you will have to be able to demonstrate that the apportionment is “fair”.

Quite obviously businesses don’t want to run foul of the HMRC, and a little bit of timely advice now will head off any queries later on. For further information please contact Cathy Cook at Jordans Solicitors Wakefield Offices in West Yorkshire.


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