It is proposed that the rate of VAT will be restored to 17.5% on 1 January 2010 assuming that HMRC do not take on board any of the suggestions that the change should take place later, the rate should be higher, lower or something else. It is perhaps only human nature that minds will be turning to possible arrangements to create a tax point before that date (like prepayments or early invoicing) so as to benefit from the 15%. This obviously makes sense only for supplies to unregistered or partially exempt persons.

Unfortunately, there are some anti-avoidance provisions which can give rise to a supplementary VAT charge of 2.5% on 1 January 2010. This will apply where the supply of goods and services spans the date of the VAT change, i.e. the VAT invoice or the payment by the supplier takes place before the change but the “basic time of supply” is after the change. The basic time of supply is when the goods are delivered or the services are performed.  

The rules will only apply where:

  • The parties are connected;
  • The value is more than £100,000;
  • A prepayment was financed by the supplier or someone connected with him or her; or
  • Payment is not made until at least six months from the date the VAT invoice was issued, in cases where the invoice would fix the time of supply.

These conditions do not seem to be particularly onerous, at least as far as small businesses are concerned.