VAT increase is a taxing issue
Question : I am a small independent retailer and have been charging 17.5% on deposits received pre-January 4 and where the remainder has been paid after that date I have been charging 20% — is that correct and are there any exceptions to this?
Chas Roy Chowdhury, head of taxation at the Association of Chartered Certified Accountants replies:
Yes. Generally, whenever the supply was made to the purchaser, you charge the rate of VAT that applies on that date. So financial transactions after January 4 are at 20% and those before are at 17.5%.
But as usual with tax issues, there are exceptions: for instance, if you are selling a vehicle and the customer has contracted to purchase it but will pay for it on March 1, they may still be entitled to the 17.5% rate. If dealing with goods sold at the previous VAT rate but returned after the increase, you should give refunds and credit notes at the rate that applied when you made the sale.
Small to medium-sized businesses could also defer VAT payments. HM Revenue and Customs (HMRC) has a scheme called Time to Pay. If SMEs are absorbing the cost of the VAT hike, it’s probably because they feel they have to.
HMRC should not use this as a reason not to negotiate deferred payments.