HMRC has moved to help businesses in implementing the return of the standard rate of VAT to 17.5%.
The department has announced
- special accounting arrangements for businesses operating beyond midnight on 31 December, and
- a 'light touch' to be operated by HMRC audit staff in dealing with errors arising out of the rate change.
HMRC will allow certain firms to account for VAT at 15% on takings received up to the earlier of the end of trading of the 31 December session or 6am on the morning of 1 January.
This treatment is restricted to businesses open at midnight on 31 December 2009 that account for VAT at the point of sale, such as pubs, shops, and restaurants.
It will not apply to mail-order or online retailers, firms that account for VAT on the basis of VAT invoices issued, or pre-payments for supplies of goods or services to be provided after 6am on 1 January.
In addition, it will not apply to sales made through coin-operated or similar vending, amusement or gaming machines, etc. Neither will it apply to transactions made after midnight on 31 December that would have been caught by the rate change anti-forestalling legislation (FA 2009, Sch 3) had they been made before midnight.
Telecommunications providers will be allowed to charge VAT at 15% on charges for voice calls and text messages that take place and are billed up to 6am on 1 January.
HMRC will, however, operate a 'light touch' in terms of errors made in the first VAT return after the change (where the mistake relates to a change of rate issue).
This means that Revenue audit plans will not target change-of-rate errors that are unlikely to lead to any material net revenue loss. Where the department finds errors that relate to a change-of-rate issue, it will not seek an adjustment unless there is reason to suppose that there is an overall revenue loss.
But if the supply is, or may be, to a customer who is not able to recover VAT in full, there is likely to be an overall loss of tax, and HMRC will seek to adjust (issue an assessment) in the normal way.
In situations in which HMRC do need to adjust (and issue an assessment) we will take into account the difficulties the business has faced in adjusting to the change in considering whether penalties apply.
Finally, for a period up to 14 days, traders will be permitted under the Price Marking Order 2004 (SI 2004/102) to let consumers know, by way of a general notice, that an adjustment in price, to take account of the VAT change, will be made at the till.
