VAT Returning to 17.5%
December 2009
It has been widely announced in the news and by HMRC that the VAT standard rate is returning to 17.5% on 1st January 2010. Changing the rate within Diamond Discovery software will depend on which method you chose last year when changing it to 15%.
In 2008 we presented you with two options to effect the change and here we present you with what to do now for each of these options. Either way, the adjustment is straightforward and shouldn't take you too much time.
However, we do advise that you set aside time in your diary to plan, test and execute this in good time.
OPTION 1 – IF YOU USED A NEW VAT CODE FOR 15% RATE FROM 1st DECEMBER 2008
If you used a new VAT code for the 15% rate, say VAT code 3, leaving VAT code 1 as 17.5%.
Continue to use VAT code 3 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 1 unless the Product/Service/Assembly default VAT code is blank or has another default such as zero rated (e.g. VAT code 0) or exempt (i.e. VAT code N); 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 1 unless their default VAT code is blank or they have another default such as zero rated (e.g. VAT code 0) or exempt (i.e. VAT Code N); 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 1 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 January 2010 to VAT code 1. 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 1 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 1st January 2010 to VAT code 1. 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 Nominal Ledger parameters and change to VAT code 1 if your usual cash book transactions are subject to the standard rate of VAT.
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 – IF YOU CHANGED YOUR EXISTING DEFAULT VAT CODE TO 15% AND ADDED A NEW VAT CODE FOR 17.5%
For all transactions after the changeover date of 1st January 2010:
- Change the existing VAT code 1 to 17.5%
- Change VAT code 3 (or the new VAT code you used) to 15%
Re-enter or Amend any Sales Orders for standard-rated goods to be delivered and invoiced after 1st January 2010 to VAT code 1. You will need to co-ordinate with your business customers to resolve any discrepancies.
Re-enter or Amend any Purchase Orders for standard-rated goods to be received and invoiced after 1st January 2010 to VAT code 1. 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 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% increase 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. We hope you understand that Diamond Discovery can accept 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.