VAT – Anti-forestalling legislation - Mazars - United Kingdom
VAT – Anti-forestalling legislation
The temporary reduction in the VAT standard rate to 15% is due to end on 31 December 2009 and HM Revenue and Customs (“HMRC”) have published guidance based on the assumption that it will revert to 17.5% on 1 January 2010.
(Interestingly, when recently asked by the press, the Chancellor declined to confirm that the rate will, indeed, revert to 17.5%).
For some businesses, individuals, and not for profit concerns, the increase in the standard rate in VAT will result in an additional irrecoverable VAT cost arising.
In order to counter manipulation of tax points aimed to fix the VAT rate at 15%, anti-forestalling legislation was introduced in the Finance Act 2009. This is designed to restrict the extent to which a forestalling benefit can be obtained by the lower 15% rate continuing to apply to certain supplies of goods and services provided on or after 1 January 2010. Businesses caught under the legislation are obliged to make a supplementary VAT charge on their supply that will bring the total VAT charged to the equivalent of the new higher standard rate.
The legislation will affect anyone who is VAT registered and who receives a payment or issues a VAT invoice before 1 January 2010 for goods and/or services to be provided after that date to a person who is not able to recover VAT charged in full where certain other conditions are met.
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