The standard rate of VAT is due to return to its previous level of 17.5% on 1 January 2010.
Although specific rules were put in place to ensure that VAT was accounted for at the correct rates on the way into this scheme HM Revenue and Customs were quite relaxed about this due to the short notice given to implement the changes. However, it is unlikely that they will be so relaxed with the VAT treatment of transactions around the time of the increase to 17.5%.
This means that it is important that all VAT registered businesses plan to ensure the changeover is a smooth one. There are two planning issues:
Firstly, there is an opportunity to lock supplies in at the 15% rate of VAT by way of fixing the tax point of supply at a date before 1 January 2010.
Secondly, you need to avoid any unwanted reductions in your margins. You may have seen many retailers advertise the fact that your 2.5% VAT reduction would be deducted at the till. Can you imagine a sign saying that the 2.5% VAT increase will be added at the till!
If you advertise your prices gross, and the prices are not corrected by 1 January 2010, you are reducing your margins by 2.5%. It is unlikely that you would want to be inadvertently reducing your margins by 2.5%!
If you wish to take advantage of these planning opportunities and avoid any unwanted losses, please contact us for additional advice focussed specifically on your business needs.