A supply made after 4 January 2011 will carry VAT at 20%. Or will it?

It has been well publicised that the standard rate of VAT will increase to 20% on 4 January 2011. This means that all supplies made on or after this date will be subject to the 20% rate of VAT. Or will it?

It is still possible to secure the 17.5% rate of VAT for supplies made on or after 4 January 2011, as long as the provisions of the anti-forestalling legislation are not breached.

HMRC consider that anti-forestalling occurs when arrangements are put in place for a VAT invoice to be issued by a supplier or payment received by a supplier before the rate increase where goods are not due to be delivered or services to be delivered until after the rate increase.

However, the current rate of 17.5% can still apply where an advance payment is made or an invoice is issued in advance of 4 January 2011 (to be paid within a maximum period of 6 months), given the following circumstances: -

· the supply must be valued at £100,000 or less

· the supplier and customer must not be connected parties, and

· the supplier (or someone connected with the supplier) must not provide any finance.

The anti-forestalling legislation does not apply where the supply is being made to a business which is able to fully recover the VAT charged through its own VAT return.

There is scope to mitigate the impact of the rate increase – but businesses need to tread carefully to ensure that they do not fall foul of the anti-forestalling provisions.

If you are in any doubt, do contact us here at The VAT Consultancy and ask to speak to a consultant.