VAT – Changes from January 2011
Here are a number of reminders related to the VAT changes that took effect from 4 January 2011.
As is well known the standard rate of VAT increased from 17.5% to 20%. The reduced rate of VAT remains at 5% and there were no changes to the VAT zero-rate or the list of VAT exemptions.
Businesses using special schemes such as the cash accounting scheme, annual accounting scheme and the flat rate scheme must ensure that they are aware of how the rate change affects the use of the schemes. There was also an increase in the thresholds for the payments on account regime.
There are special rules for sales that span the change in rate and for the continuous supplies of services. There are also special rules relating to deposits received before 4 January 2011 for sales made after the rate change.
In order to calculate the amount of standard rate VAT in a VAT inclusive price from 4 January 2011, the VAT fraction will be 1/6. Previously it was 7/47.
New VAT rules came into force on 1 January relating to the VAT treatment of certain EU cross-border supplies. Those affected are cultural, artistic, sporting, scientific, educational, entertainment or similar activities supplied to relevant business customers.
This means that most ‘business to business’ supplies of EU cross-border supplies of such activities will be taxable in the EU member state of the customer. And it is the customer who will be responsible to account for VAT using the reverse charge mechanism.
It is important to note that these new rules do not affect ‘Business to consumer’ supplies.