Update your company file to use the Standard Rate VAT of 15% for 1 December, 2008

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Standard Rate VAT of 15% for 1 December, 2008

Updated: Mar 27, 2009

Article ID: 2893

General information

On 24 November, 2008, in his pre-budget report, the Chancellor announced a temporary decrease on the Standard Rate VAT to 15% for a period of 13 months. From 1 December, 2008, the Standard Rate VAT will change from 17.5% to 15%. For more details regarding the VAT rate changes, visit the HMRC Web site.

Intuit is unable to advise which VAT rate should be used for transactions that span the two rates. Please refer to the HMRC detailed VAT Guide on which Standard Rate VAT to use for sales that span 1 December, 2008. If you are still unsure, please contact the HMRC National Advice Service (0845 010 9000).

Standard VAT Scheme

The tax point of the supply will determine the rate of VAT to be applied.

Cash Accounting VAT Scheme

The tax point is the time the sale is made - not the date you receive payment. This determines the rate of tax applicable.
VAT will be due at 17.5% on supplies made before 1 December, 2008 even if payment is received after this date.

The following items of interest are covered in VAT – CHANGE IN THE STANDARD RATE: A Detailed Guide for VAT-Registered Businesses (published by HMRC)

What VAT can be claimed back on purchases
How to complete the VAT account / VAT return
Special VAT accounting schemes
Particular types of business
Particular types of sales
Guidance on time of supply and tax points
Situations with two or more tax points
Continuous supplies of services
Special rules that may apply at 1 December, 2008 to supplies of goods and services that span the rate change

Updating your VAT information in QuickBooks

If you track VAT, below are two options you can choose from to make the necessary changes to your VAT information in your particular version of QuickBooks:

QuickBooks Pro/Premier

Option 1:

Create a new Standard Rate VAT code

Positives:

Best solution for VAT reporting and audit purposes
Manual VAT calculations will not be required when editing transactions created before 1 December, 2008 using 17.5% Standard Rate VAT
Use of separate 15% VAT codes clearly identifies to your customers and employees the temporary nature of this VAT rate on sales and purchase forms
Preferred HMRC solution

Negatives:

QuickBooks 2008

Time consuming process – the time required to complete these steps may exceed a full working day
On 1 January, 2010, the process will need to be repeated to revert to the 17.5% Standard Rate VAT
Setting up new VAT codes is a complex process - the instructions provided must be followed without error
Requires a good knowledge of VAT reporting to check the new VAT codes have been set up correctly
Not applicable to SimpleStart

QuickBooks 2006

Time consuming process – the time required to complete these steps may exceed a full working day
On 1 January, 2010, the process will need to be repeated to revert to the 17.5% Standard Rate VAT

Option 2:

Edit your existing Standard Rate VAT code

Positives:

Quick – the time required to implement this solution is expected to be less than 30 minutes now and 30 minutes on 1 January, 2010 when the Standard Rate VAT changes back to 17.5%
VAT reports will be correct (if applicable, manual calculations on transactions have been completed)
Audit possible but relies on use of VAT code description to identify % rate used in the calculation shown on the Audit Trail report
Applicable to SimpleStart

Negatives:

Relies on employee vigilance when entering and modifying transactions to ensure that the correct VAT % has been calculated (manual VAT calculation may have to be performed when entering transactions)
Not the preferred solution of HMRC
The VAT summary on the invoice displays the % set up in the VAT code (this will display at 15% for current and historical invoices)

QuickBooks SimpleStart

Option 1:

Edit your existing Standard Rate VAT code

Positives:

Quick – the time required to implement this solution is expected to be less than 30 minutes now and 30 minutes on 1 January, 2010 when the Standard Rate VAT changes back to 17.5%
VAT reports will be correct (if applicable, manual calculations on transactions have been completed)
Audit possible but relies on use of VAT code description to identify % rate used in the calculation shown on the Audit Trail report
Applicable to SimpleStart

Negatives:

Relies on employee vigilance when entering and modifying transactions to ensure that the correct VAT % has been calculated (manual VAT calculation may have to be performed when entering transactions)
Not the preferred solution of HMRC

Please make a back up of your company file before continuing with either option.