How to handle the VAT Changes

VAT is reduced to from 17.5% to 15% with effect from 1^st December 2008. 

All sales invoices (bills) dated on or after 1^st December should show 15.00% VAT.

For purchases, you should record the VAT as shown on the invoice (regardless of when it was received)

Generally, you can change the VAT rate yourself, (on the VAT and Setup screen)

However, as the last change was over 25 years ago, we thought the following guidance would be useful.

 

1)       Changing the system VAT rate

If you are handling legal aid (LSC payments), go to section 5 now

a)       When to make the change

Except for legal aid (see section 5), it would be best if you

Finish processing November, both bills (sales invoices) and purchases

Before you change the VAT rate.

Your new (December) invoices will be at the new VAT rate.

b)       How to make the change

You will need the full bookkeeper password

Go to the user set–up and settings screen

        (Old style "button" menus).  Choose 8..SetUp & Customise then V..VAT & SetUp

        ("Pulldown" menus).  Choose "Tools" (on the right), then "Options" (at the bottom).

You then see a new screen (white or grey) with "User Menus" (at the top)

                 On the right, in the middle, you can set "VAT Rate".  With 17.50 showing.

                 Change the 17.50 to 15.00 (include the zeros), then press OK (at the bottom)
                Exit the screen and save the changes.

       

2)       Sales Invoices (Bills)

All goods which you invoice on or after 1st December have a VAT rate of 15%. (Regardless of when you did the work)

To amend the VAT rate, then, when you are posting journal 5 (bills rendered) you have a chance to change the VAT after you have entered the goods (fees).

 

3)       Purchases (generally, office out's)

When you enter a line on the office out,

You first enter the total (the "amount" – on the right)

Then you can press "tab" or point to the VAT box to calculate or change the VAT

The computer calculates VAT using the VAT rate which you set on "set up and customise", above.  If there is any doubt, you should refer to the original invoice (but for many lines the VAT value is obvious)

 

4)       The VAT return

As long as the VAT is correct on every posting line, then the VAT report will be quite correct, as it reads back the VAT from the posting lines in order to calculate the return. Very likely, you will have a mixed VAT return, with some lines at 17.5% and some at 15%. This is quite acceptable and no cause for worry.

 

If you have any queries about how the changes apply to you, then the government's own guidance is on http://www.hmrc.gov.uk/pbr2008/measure1.htm.
 

 

5)       Invoices issued to the LSC (LEGAL AID ONLY)

 

a)       What are the LSC rules?

The "VAT Point" is the date when the VAT invoice is issued (to the customer).   This date determines what the appropriate VAT rate is.
The definitive explanation - with many exceptions – is in "The VAT Guide" (HM Customs Notice 700, Section 14).

We think the LSC will choose the CDS11 as the VAT Invoice Date
 

 b)       What should I do?

First, you must install the new program version (420.01).  This is being sent on
                Thursday 27 November.
                Previous versions of the LSC reports locked the 17.5% into the legal aid
                documents. 

        Setting the VAT rate is described in section (1) above

 

c)       CDS11s, recalculate, resubmit and so on

The new release includes new versions of all the bill screens.  For example, when you make a police bill, you will see a Bill VAT rate in the top right hand corner (as here)

This allows you to change the VAT at Billing (CDS11) time.  So you can adjust and or resubmit any CDS11, or, if they are different, to conform to the LSC requirements.

 

d)       Purchase invoices and VAT return, please see sections 3 and 4 above