June Budget – VAT – Anti-Forestalling legislation
In tandem with the introduction of a new standard VAT rate, the Chancellor has announced that targeted anti-Forestalling legislation will be introduced in the 2010 Finance Bill. The legislation is intended to counter any arrangements that seek to take advantage of the current 17.5% rate forsupplies of goods and services to be delivered or performed on or after 4 January 2011.
The type of forestalling which is being targeted exists when, in the above cases, a supplier issues an invoice or receives payment before the rate rises. This fixes the VAT due at 17.5% even though the goods are not due to be delivered or services to take place until on or after the date that the rate changes to 20%.
The legislation is intended to prevent forestalling where one or more of the following conditions is met:
- The supplier and customer are connected parties
- The value of the supply exceeds £100,000 except where such prepayments are ‘normal commercial practice’.
- The supplier funds the purchase of the goods or services.
- A VAT invoice is issued by the supplier where payment is not due for at least six months.
The provisions will have effect from 22 June 2010.