Chartered Management Accountants and Consultancy Services for Small and Medium Sized Businesses

15% VAT Update

On the 24th November 2008 , the Chancellor, Alistair Darling announced that from 1st December 2008, the rate of VAT would be reduced to 15%.

Whether you are registered for VAT or not, we recommend that you read the following summary carefully.

For those clients using Sage the transition should be reasonably smooth.

Sales Invoices

The procedure to change the rate is as follows:-

Open Sage.

Ensure that all the options (Customer/Supplier/Bank etc.) are closed down.

On the menu line at the top of the screen click on Settings.

Go to Configuration

Go to the tab Tax codes.

Highlight the tax code T1

Click on the Edit button

In the rate box change from 17.50 to 15.00

Click on OK

Click on Apply

Close the Configurator menu.
(If the system displays on option to ‘save’ click “No”.)

All sales invoices will with tax codes T1 will now be changed.

Carefully check the first Sales invoice produced after making the changes.

Please remember to make the change only on the 1st December 2008.

If you use older versions of Sage, or Sage Instant, the screens may appear slightly different, but the basic procedures will be the same.

For those clients with Financial Controller, who use the Duplicate invoice or Recurring Invoice facility, please check that the VAT amounts have changed

If you produce manual invoices, please remember to add on VAT @15%, from 1st December 2008

Supplier Invoices

Purchase invoice from your suppliers will still be charged at 17.50% if dated before 1/12/2008.

All invoices dated on or after this date should be charged at 15%.

The changes do not affect zero or reduce rated goods or exempt supplies

Check your supplier invoices carefully.

The VAT rate has not changed for 16 years, so mistakes are bound to be made, in the transition to the new rate.

The VAT Fraction

For VAT inclusive calculations, the VAT fraction will change from 7/47 to 3/23”.

Ie. Divide by 23 and multiply by 3.

The 15 % rate is planned to end on 31st December 2009 ie for 13 months.

Given the speed of introduction of the new rate, we will be staying in the office on Friday 28th November to answer any questions.

VAT rate reduction update 27th November 2008

Sage entries

Purchase invoices and bank transactions

One issue that has become apparent is that when the T1 code is amended on 1st December, any purchases entered after that date will default to 15%.

Clearly invoices received with date prior to 1st December, will still be calculated at the old rate.

The simplest way around this is to change the VAT amount manually, when entering the invoice.

( If you have low volumes of purchase invoices - I would recommend this as the preferred route. )

Alternatively, a new 'T' code say T15 which is presently un-used, could be amended and used.

( I would recommend this if you have a larger volume of purchase invoices - and this is Sage's advice).

Using an amended code does have implication, particularly all 'defaults' will still be set to T1.

Sales and Purchase Order Processing

Sales and purchase orders no not create a VAT tax point, only the date of invoice is relevant.

If you use S O.P. You will have to amend the VAT amounts at time of invoice creation, prior to invoice creation.

If you use POP you will need to amend the VAT amounts at time of invoice receipt.

Please continue to monitored the web site for updates on a daily basis.

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contact Kenneth or Amanda Aldred here.