Tax & Accounting News

Reduced VAT rate extended for New Year’s Eve traders

27/11/2009

Businesses whose opening hours are set to straddle midnight on 1 January 2010 have been given a ‘period of grace’ by HM Revenue and Customs (HMRC), allowing them to continue to charge VAT at the reduced rate of 15% on sales until 6am.

VAT was due to revert to 17.5% at midnight, but businesses that would have been open at the time – particularly pubs and clubs where people may be celebrating the New Year – would have faced the difficult task of adjusting their prices mid-way through the night.

The concession will also apply to telecommunications companies, which may bill for calls and text messages at the reduced rate until 6am.

Some businesses will not be allowed to take advantage, including mail order or on-line retailers and businesses that account for VAT on the basis of invoices issued. Also excluded are pre-payment for goods or services to be provided after 6am on 1 January, takings from vending machines and transactions that would be caught by the existing anti-forestalling rules surrounding the rate change.

HMRC has also stated that the concession may be withdrawn or restricted in other cases, where its use was not considered appropriate or necessary.

Recent research by accountancy software provider Sage has shown that only a third of businesses have so far prepared for the VAT changes before they close their offices for the Christmas period. The firm urged more business owners to start making plans now in order to avoid problems later.

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