By John Voyez, VAT Director at Smith & Williamson

Business owners need to start thinking about the impact that the increase in the VAT rate to 20% on 4 January 2011 might have on their business. This will be particularly pertinent where full VAT recovery is not possible, for example for in the financial services, education, charity and not for profit sectors.

Previous changes to the VAT rate have raised a number of questions about what can and can’t be done ahead of the increase. So here’s a basic, easy-to-follow summary of what is and what isn’t allowed.

1. If goods or discrete (one-off) services are provided before 4 January 2011, but invoiced after the 4th, 17.5% applies.

2. For any supplies of services (continuing supplies) spanning 4th January, but invoiced after the 4th, the VAT liability can be apportioned at 17.5% for work performed before the 4th, and 20% for work on or after the 4th.

3. If goods and services are supplied after the 4th, but an invoice is raised or payment received before the 4th, then 17.5% applies. This is subject to anti-avoidance measures.

Anti-avoidance measures will only apply if the business cannot recover VAT in full, and:

1. the supplier and customer are connected, or

2. the value of the supply exceeds £100k, or

3. the supplier or someone connected funds a pre-payment, or

4. payment of the advanced invoice is not due in full for 6 months.

It should be emphasised that this is only intended to be a very basic, easy to follow crib sheet. There are a few aspects which might require further investigation.

Businesses, especially those in the not for profit sector, should in any event ensure they are making the most of existing VAT reliefs and exemptions.

If you need help getting ready for the VAT increase or with any other VAT related matter, speak to John Voyez on 020 7131 4285 or email john.voyez@smith.williamson.co.uk

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