Monday 24 November 2008

Implementing 15% VAT

The Chancellor of the Exchequer has announced that a new standard VAT rate of 15% will apply from Monday 01 December 2008 to the end of 2009 - and then it will revert to 17.5% from 01 January 2010.

HM Revenue and Customs has made a set of information available on its web site at the Pre-Budget Report 2008 - VAT Rate Changes page including
  • A summary guide for businesses

  • A technical guide for businesses

  • Question and Answers for Businesses

  • Question and Answers for Consumers

  • PBRN26 - Changes to the Standard Rate of VAT

  • This won't affect my prices which are quoted ex VAT, but it will be important to account for both 17.5% and 15% rates during the current VAT reporting period.

    My personal service company has Quickbooks 8.0 as its book-keeping tool. The number of current sales and purchase items is small, a handful at any one time, so it will be messy but possible to cope with this change without acquiring a new software solution.


  • Set up a new standard VAT code (S1) with a rate of 15% and description Standard 1

  • From 01 Dec 2008 to 31 Dec 2009, for sales items, apply the S1 rate for all invoices, instead of the S rate. This can be done by working through the Item List (Lists/Items) and changing the default rate for active items to S1.

  • It will be important to check each invoice received after 01 Dec 2008 to make sure which rate it carries. Initially there will be a mixture of old and new, and so when entering a vendor bill, you'll need to check carefully which rate is used, and adjust the code if necessary. Of course, if you use a rate that doesn't match the invoice, the amounts will/should fail to balance, preventing mistaken data entry on purchases.

  • Soon it will make sense to work through the purchased items in the Item List and change the default VAT code to S1, but after doing this it will still be necessary to take care

  • With the above approach, the VAT 100 and other VAT reports seem to work fine. It's not sophisticated but it works. Obviously for companies that sell direct to the public, or that have a large number of sales and purchase items, this will become very time consuming and unwieldy. Big companies using sophisticated ERP software such as SAP will be able to implement these changes with timed data, but smaller companies won't have this luxury. And of course, the whole thing will have to be reversed in 13 months' time.