Rate Change – Budget 2010
Decrease in the standard rate of VAT from 21.5% to 21% from 1 January 2010
1. The standard rate of VAT will be decreased from 21.5% to 21% with effect from 1 January 2010. This rate applies, for example, to supplies of motor vehicles, petrol, electrical supplies, furniture, carpets, adult footwear and clothing. The purpose of this leaflet is to outline the implications of the change for VAT-registered traders.
Zero rated goods, such as basic foodstuffs, children’s clothing and children's footwear and oral medicines, and goods and services subject to VAT at the 13.5% rate such as catering, new houses, construction services and solid fuel are not affected by the change.
Which VAT rate must the trader apply ?- general rule
- 2.1 The general position is that traders accounting for VAT on the invoice basis should apply the rate of VAT in force at the time they issue or are obliged to issue a VAT invoice , whichever is the earlier. In the case of transactions with private individuals, a trader should apply the rate in force at the time of the supply.
- 2.2 Although traders who account for VAT on the cash basis are not liable for VAT on their supplies until they receive payment where they supply goods or services before 1 January 2010 but receive payment on or after 1 January 2010 they should account for VAT on those supplies at the 21.5% rate. Such traders should account for VAT at 21% on goods and services supplied on or after 1 January 2010.
The effect of the change of VAT rate on contracts with fixed interval payments
3.1 When payments for continuous supplies due at fixed intervals over an agreed time-frame become due before 1 January 2010, they should be treated as being taxable at the 21.5% rate of VAT if invoiced before 1 January 2010. This applies even if the interval over which the supplies take place spans the time both before and after that date. For example, rental of office equipment or a television for the interval from 1 October 2008 to 31 January 2010 should be treated as taxable entirely at 21.5% if the payment is due before 1 January 2010 and the invoice for that fixed payment is issued before that date. If such an invoice is issued on or after 1 January 2010, the rate is 21%.
4.1 VAT invoices issued by a VAT-registered person (who is not on the cash basis) to another VAT-registered person on or after 1 January 2010 should show VAT at the 21% rate. This is so, even if the goods or services were supplied before that date.
4.2 A trader on the cash basis who is required to issue a VAT invoice to another VAT registered person should show the VAT rate which applies on the date of the supply, not on the date of receipt of payment (see paragraph 2.2 - under Which VAT rate must the trader apply ?- general rule )
4.3 VAT liability in respect of goods or services supplied to an unregistered person is normally determined by the date of supply and not the date of issue of the invoice, if any. Goods or services which are actually supplied to unregistered persons prior to 1 January 2010 are taxable at the 21.5% rate even though they may be invoiced on or after 1 January.
4.4 For invoices relating to utilities please refer to Paragraph 8 - Continuous supplies of utilities.
5.1 Any VAT credit note or debit note relating to a supply of goods or services which contains a VAT adjustment and which is issued to a VAT-registered person, a Public Body or an exempt person on or after 1 January 2010 should show VAT at the rate in force at the time the original invoice was issued.
5.2 Any credit note or debit note relating to a supply of goods or services which is issued to an unregistered person on or after 1 January 2010 should show or include VAT at the rate in force at the time of the supply.
5.3 For credit notes relating to utilities, please refer to Paragraph 8 - Continuous supplies of utilities.
Advance Payments received before 1 January 2010
6.1 An advance payment, including a deposit, received from a VAT-registered person before 1 January 2010 in respect of goods or services not supplied until that date is subject to VAT at 21.5% if the invoice relating to that payment is issued or required to be issued before 1 January 2010. However, if the invoice relating to that payment is issued or required to be issued on or after 1 January 2010, the payment is taxable at 21%. In the case of traders accounting for VAT on the cash basis, an advance payment received before 1 January is taxable at 21.5%. Any advance payment received from an unregistered person is taxable at the 21.5% rate if received before 1 January 2010 and 21% if received on or after that date.
7.1 Where a contract to supply goods or services is entered into before 1 January 2010 and the contract is not completed until after that date, then the agreed VAT inclusive price may be subject to an appropriate adjustment on account of the change in the VAT rate.
Continuous supplies of utilities
8.1 In the case of continuous supplies of utilities (i.e. gas, electricity, telecommunications) to non-business and other unregistered customers the rate applicable is the rate in force at the time the bill issues to the consumer, provided that the company issues a bill at least every three months. Of those, the only continuous supplies chargeable at the standard rate are telecommunications supplies. (Supplies of gas and electricity, both subject to the 13.5% rate, so this change does not affect them.) The VAT rate applying to supplies to business customers is the rate applicable on the date of issue of the invoice or bill.
8.2 Telecommunications services billed before 1 January are taxable at 21.5% and telecommunications services billed on or after 1 January are taxable at 21%.
8.3 Any credit note or debit note covering a supply of telecommunications services which is issued to non-business or other unregistered customers after 1 January 2010 relating to a bill issued before 1 January 2010 should show the rate applicable on the date of issue of the bill itself, i.e. the 21.5% rate.
Budget account sales, hire-purchase sales and other credit sales
9.1 These sales are chargeable to VAT as follows –
- at the rate in force at the time of the sale by the finance house, in the case of sales to unregistered persons, or
- at the rate in force at the time of issue of the invoice by the finance house in the case of sales to VAT-registered traders.
Stock on hands on 1 January 2010
10.1 Persons who are registered for VAT on 1 January 2010 should account for VAT at the 21% rate on stock supplied after that date even though they may have purchased their stock with VAT at the 21.5% rate before that date. Such persons will already have been entitled to a credit for VAT on the purchase of that stock, subject to the usual conditions.
11.1 Enquiries regarding any issue contained in this information leaflet should be addressed to the Revenue District responsible for the taxpayer’s affairs. Contact details for all Revenue Districts.
VAT Interpretation Branch
New Stamping Building