How to handle the upcoming 20% VAT Rate

VAT is increased from 17.5% to 20% with effect from 4th January 2011.

All sales invoices (bills) dated on or after 4th January should show 20% 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, 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 December, both bills (sales invoices) and purchases

Before you change the VAT rate.

Your new (January) 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 20.00 (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 4th January have a VAT rate of 20%.

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 20% and some at 17.5%. 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/vat/forms-rates/rates/rate-increase.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

IMPORTANT - LSC BILLS ARE BASED ON THE "WORK CONCLUDED" DATE AS THE DATE FOR VAT PURPOSES

This includes all claims and claim forms, and all areas of LSC funded work

Whenever you need to, you can change the CDS11 VAT  rate and resubmit them
        (see section (c) below)

 b)       What should I do?

First, you must have at least V0420.01.  Please contact us if this is not the case.
                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

Leave the system VAT at 17.50%  until you have billed the bulk of "work
        concluded in December"

This will probably be the CDS11s for December, due January 20th

Before you start billing work concluded in January, change the system VAT
        rate to 20.00%

This will probably be in early February, but could be later if you bill in arrears. 

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