Are you thinking of buying a Plasma Screen in the New Year? A quick internet search tells me that a 46-inch Plasma Screen currently costs about £1,250. Why am I telling you this? Well, currently the VAT rate is 15%. This means that £163 of the purchase price of the TV goes to HM Revenue and Customs in VAT.The VAT rate changes on 1 January 2010. This will increase the price of the TV to £1,277 so buying that expensive personal purchase now will save you money! This assumes that the retailer passes on the extra VAT cost to the customer but does not take into account the possibility of price cutting in the New Year when we move into the post-Christmas-blues period and retail sales start falling.
More importantly, if you run a business you must update your accounting systems and invoicing procedures to make sure you charge the correct rate of VAT on 1 January 2010. The VAT rate on 1 January 2010 returns to 17.5%. Can a business use the change in VAT rate to its advantage?
Yes, you can if you sell goods and services to customers who cannot recover the VAT. In other words, sales to the public. In our own situation, we will be encouraging our personal tax clients to let us have the information to prepare their tax return well before Christmas so that the return is completed and billed before 1 January and the 15% VAT rate applies. If you run a landscaping business and the client, say, spends a couple of thousand pounds with you each January, asking them to bring forward the work into December will save them money and – more importantly – help your cash flow.
One final word of warning. Before previous VAT changes, customers have been able to pay in advance for goods and services and pay the lower rate of VAT. This cannot be done now because the Revenue has introduced anti-avoidance provisions to prevent this happening.