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Accounting for the 1st January 2010 VAT change

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This article was kindly provided by HfM Accountants.

On the 1 January 2010 the VAT basic rate returned to 17.5%. For many traders who pay VAT on the difference between what they charge on invoiced sales and pay on invoiced purchases and services, changes to accounting software should be fairly straight forward. The more well known software providers should have issued clear guidelines.

However if your VAT quarterly returns end on 31st January or 29th February 2010, they will include VAT collected and paid at both 15% and 17.5%. Care should be taken especially if you use Cash Accounting or the Flat Rate Scheme. Also take care to access the new flat rates which will apply from 1st January 2010; not all the rates will have returned to the same level set at 1st December 2008. You can access the new rates on the HMRC web site.

Readers may also find the following notes useful:

  • The new VAT fraction to use if an invoice includes VAT and you want to know the VAT figure within the charge, is 7/47 with a VAT rate of 17.5%. For example to calculate the VAT in a VAT inclusive price of £235 multiple the amount by 7/47, (£235 x 7/47 = £35).
  • If you want to increase prices to pass on the VAT increase to customers (e.g. if you are a retailer), multiply the previous VAT inclusive price by 47/46. For example - £115 (old price) x 47/46 = £117.50 (new price).
There are also complications if you make a supply of services which span the 31 December 2009, or if you issue a credit note after the 1 January 2010 for goods or services supplied before that date.

Posted January 18, 2010

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