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Do you sell to the public? Or to businesses that cannot recover VAT?

My thanks go to John Shearer of Mayell Shearer VAT consultants for this article. You can encourage your customers to pay you in advance to avoid the VAT increase.

John says that most people are giving some thought to the increase in the standard VAT rate. This of course will have effect from 4 January and will impact on virtually every person and business. It will be the highest rate we in the UK have endured and is precisely twice the rate when VAT was first introduced. I would like to say I was just a boy at the time but alas cannot!

However, there is an opportunity for retailers and other suppliers to the public or to business customers who cannot recover VAT to arrange transactions so as to benefit from the current rate. This is a matter of ensuring that the tax point is effective pre 4 January.

It is therefore possible to issue a tax invoice prior to a supply which will take place at a later date. This works best, of course, for businesses on cash accounting. Another way is to seek settlement for an intended transaction pre 4 January. It may, however, not be sensible to pay with a credit card if one cannot pay the balance as the benefit of the 2.5% saving could disappear in interest charges.

There are anti-forestalling provisions (forestall …to anticipate, in case you don’t know) that prevent serious abuse. However these measures apply only in specific situations and probably are not a problem for the average forestaller.

The conditions that call into play the measures include:

• The supplier and customer are connected persons

• The value exceeds £100,000

• The supplier (or a connected person) funds the prepayment

• An advance invoice where payment is not required in full within six months (although this is not a problem re an HP agreement in normal commercial practice)

• Note that similar measures relate to the granting of rights or options

So, for most ordinary transactions, the measures will not present an issue.

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