VAT Rate Change in November 2008
November 2008
You should by now have received a letter from HMRC which aims to explain the details of the standard VAT rate change effective 1st December 2008. The definitive explanation of the VAT changes can be found at http://www.hmrc.gov.uk/pbr2008/vat-guide-det.pdf.
We advise you to thoroughly read and understand the letter and decide on which course of action you wish to take. With regard to effecting the change in Diamond Discovery software, we have identified two options and have explained these in detail below. The first option will allow you to keep a separate account of transactions at each rate of VAT which will be useful if your VAT quarter spans the changeover date. The second option will simply change the rate from the changeover date.
OPTION 1 – USE A NEW VAT CODE FOR 15% RATE FROM 1st DECEMBER 2008
Use a new VAT code for the 15% rate, say VAT code 3, leaving VAT code 1 as 17.5%.
Continue to use VAT code 1 until the changeover date and then carry out the following actions:
If using the Product or Stock file, change the default VAT code for each Product/Service or Assembly to VAT code 3 unless the product/service has another default such as zero rated or exempt; in which case it does not need to be changed.
If you have default VAT codes for individual Sales and Purchase Ledger Accounts, ensure that these are changed to VAT code 3 unless they have another default such as zero rated or exempt; in which case it does not need to be changed.
Check the default Sales VAT code in Sales Ledger parameters and change to VAT code 3 if your usual output supplies are subject to the standard rate of VAT.
Re-enter or Amend any Sales Orders for standard-rated goods to be delivered and invoiced after 1st December 2008 to VAT code 3. You will need to co-ordinate with your business customers to resolve any discrepancies.
Check the default Purchase VAT code in Purchase Ledger parameters and change to VAT code 3 if your usual input supplies are subject to the standard rate of VAT.
Re-enter or Amend any Purchase Orders for standard-rated goods to be received and invoiced after December 1st 2008 to VAT code 3. This will depend on and will need to agree with the purchase invoice subsequently received from your supplier. You will need to co-ordinate with your business suppliers to resolve any discrepancies.
Check the Default Cash Book VAT code in the Nominal Ledger parameters and change if necessary.
Finally check your Stationery designs. If there is mention of the VAT rate entered as a text field in the document design then you should change this accordingly.
OPTION 2 – CHANGE EXISTING VAT CODE TO 15% AND ADD NEW VAT CODE FOR 17.5% RATE
For all transactions after the changeover date of December 1st 2008:
- Change the existing VAT code 1 to 15%
- Set up VAT code 3 as 17.5%
Check your Stationery designs. If there is mention of the VAT rate entered as a text field in the document design then you should change this accordingly.
NB. With either option, if you are maintaining VAT-inclusive selling prices in the Product/Stock file (check Product/Stock parameters), in order to pass on the 2.5% reduction to your customers, you must change the selling price accordingly, as the VAT element is calculated as a percentage of the selling price.
This notice is not meant to be a definitive or exhaustive guide. Diamond Discovery accepts no liability for any time, costs or expenses you may incur in effecting the change of standard rate VAT for your business or in the resolution of any disputes you may have with your customers or suppliers.