Budget 2009 – VAT – Anti-Forestalling legislation
The Chancellor confirmed that the standard rate of VAT will revert back to 17.5% from 1 January 2010. It was also announced that targeted legislation will be introduced in the 2009 Finance Bill to counter any avoidance schemes that seek to take advantage of the 15% rate for supplies of goods and services after 1 January 2010.
The type of planning which is being targeted is known as forestalling which works by a supplier issuing an invoice or receiving payment before the rate rises. This would aim to fix the VAT due at 15 per cent even though the goods are not due to be delivered or services to take place until on or after the date that the rate reverts to 17.5 per cent.
The legislation is designed to prevent forestalling where one of the following conditions is met:
– the supplier and customer are connected parties or
– the supplier funds the purchase of the goods or services or
– a VAT invoice is issued by the supplier where payment is not due for at least six months.
These provisions will have effect from 25 November 2008.
Effective from 31 March 2009 the legislation will also target prepayments of £100,000 or more except where such prepayments are ‘normal commercial practice’.