Plan for the Change of VAT Rate

The VAT rate changes back to 17% from 15% on the 1st January 2010. Some customers will be keen to take advantage of the old rate for new work. If they pay for work in advance before 1 January 2010 the rate is 15% even though the work will not be done until after 1 January 2010. Alternatively, if you invoice before 1 January 2010, and the invoice sets a payment date before 30 June 2010, the rate is 15% even if the work is to be done after 1 January 2010. If the customer does not pay in advance, and you do not want to raise an invoice in advance with or without a delayed payment date, the other option available is to measure the work done up to the end of 31 December 2009, and work done in 2010 and to invoice each half of measured work at the rate appropriate for the period in which it was completed. You will also need to check that VAT on invoices that you are asked to pay is at the correct rate. The usual rule is that the rate of VAT is fixed by the date of invoicing or the date of payment whichever comes first. If the supply was made in 2009 but the invoice was not raised until 2010, and you made no payment in advance the rate will be 17 %. If the supply was made in 2010 but you paid in 2009 before supply and invoice the rate is 15%. However if both you and the supplier are VAT registered traders, HMRC has promised a light touch. They are unlikely to query or object to small payments invoiced and paid at the wrong rate for work that straddles the period where there is no deliberate manipulation. Most of the headaches caused by a change of rate will be over by March. But as the year goes on take care with releasing retentions. Where the work was done in 2009 it can still be invoiced at 15% and this is useful when asking for retention from a domestic customer. VAT registered traders releasing retentions to other VAT registered traders may prefer to use 17% and this is also acceptable.