Rumours of a VAT rate change?

With rumors circulating of a potential reduction in the standard rate of VAT, BUFDG thought it might be useful to pull together a checklist of areas to consider – especially if not much notice is given of any rate change! 

Please let Andrea know if you can think of other areas that need to be added to the list.  If a rate change is made BUFDG will provide further detailed guidance.

On the income side

• Systems – the table of VAT rates within all of your finance systems will need to be updated to add in the “new” rate.  Some systems “lock” or “close” the “old” VAT rate with effect from the change of rate.  With the additional complication of working remotely consideration needs to be given to how these system changes are made and who is authorised to make them;
• Sales invoices – consider the tax point of supplies and ensure that the appropriate “old” or “new” VAT rate is applied during the period when we transition from one VAT rate to another ;
• Awareness - Sales ledger staff and anyone out in Schools or Institutes that raise sales invoices on an ad hoc basis will need to be made aware of the changes;
• Sales and retail invoice templates and till receipts – where your invoices/till receipts show the current standard rate as being “20%”, these will need to be updated.  Again, who and how will this be done;
• Tills, car parking meters and other cash income – this equipment will need to be updated to reflect the “new” standard rate.  Consideration needs to be given to whether this can be done centrally or machine by machine;
• Quotations – if you provide quotations (for example, for future bookings of facilities) check if the systems that calculate the quotes need updating (some quote on a net “plus VAT” basis rather than quoting an actual VAT figure); and
• Terms and conditions – it will be worth checking that these have been drafted on a “plus VAT” basis rather than quoting an actual VAT rate.

On the expenditure side

• Updating Financial systems – systems will need to be able to cope with two standard rates initially as orders and invoices are processed at the “old” and new “rate” ;
• Purchase Orders -
  • Purchase ordering systems may need to be updated depending on how they are configured to reflect the “new” rate – especially if orders are sent out quoting a VAT figure on them, rather than a net figure “plus VAT”
  • You may need to reissue orders with the “new” VAT rate, e.g. consider looking at those that are “call-off” orders for goods or services that will span the rate change or others that cover continuous supplies of services (such a leasing of equipment or servicing agreements)
  • Processing of purchase invoices -
    • Any staff that process, authorise or pay purchase invoices will need to be aware of the rate change
    • Where invoices are matched against a Purchase Order and automatically processed, consider if these will “error” if the VAT on the invoice is lower than on the order 
    • Some systems “suggest” a VAT figure when purchase invoices are processed and staff will need to check this closely (as they process invoices that may show the “old” or “new” rate);
    • Check that the correct VAT liability has been applied to a supply – as we have seen with the introduction of the zero-rating of e-publications, the transitional period creates its own issues, as suppliers systems are updated with the new rate and questions arise over the tax points of supplies; and 
    • Reverse charge/acquisition tax – check that where the calculation of this is automated, it will apply the correct VAT rate

 Other issues

• Uploading information into finance systems – this is often done using established spreadsheets.  Check if any of these calculate VAT, for example, where cash income is being uploaded that the correct VAT fraction is being used;
• VAT return preparation – check the working for these (again often in spreadsheets) to ensure that the correct VAT liability/VAT fraction is being applied – where the VAT return period spans the change in VAT rate this could take some thought!;
• Retrospective adjustments and claims – these are always interesting but even more so if they span a change of VAT rate;
• Budgets – as most university budgets are calculated on an VAT inclusive basis, these will need to be revised; and
• Research grants – where these have been granted on non-recoverable VAT basis, check if the value of the grant will be reduced if the cost basis is reduced

Guidance

• Where you have internal training materials, handbooks, seat notes, correspondence  and information on line (for example, tables that quotes prices), these will need to be reviewed and updated to reflect the correct rate; and
• Familiarise yourself with HMRC’s guidance on change of rate, which can be found in Section 30 of Public notice 700

Finally…

• If the rate reduction is temporary…you get to do this all over again…!