With effect from 1 December 2008 the standard rate of VAT will be reduced from 17.5% to 15%.
The reduction will be effective until 1 January 2010 when the VAT rate will be returned to 17.5%.
Businesses which currently calculate their VAT on cash sales using the VAT fraction of 7/47 should, from 1 December, use the new VAT fraction of 3/23. This change affects any VAT registered businesses that sell or purchase goods or services that are subject to the standard rate of VAT.
Retail businesses making mainly cash sales to non-business customers and who do not raise VAT invoices must use the new rate of 15% for all takings received on or after 1 December 2008, except where the consumer pays for something they received or was delivered before 1 December 2008, in which case the old rate of 17.5% must be used.
Businesses which issue invoices must use the new VAT rate of 15% for all VAT invoices issued on or after 1 December 2008, except where goods or services were provided more than 14 days before the issue of a VAT invoice in which case the old 17.5% VAT rate must be used.
There are special VAT accounting rules for certain transactions and industries.
The impact on businesses will vary. Large retailers will be able to deal with the change in the VAT rate by a simple adjustment to their accounting programmes, but small retailers will probably have to seek technical help to adjust their tills. Menus, catalogues, brochures, invoices and price lists for example will have to be reprinted or amended, as will contracts and agreements where VAT and/or the rate of VAT has been specified.
Large businesses such as the insurance and financial sectors who are unable to recover all the VAT they incur on their business costs and running expenses will benefit from this change.
Click here to view the detailed guide for VAT registered businesses.
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