With the suprise announcement that the government is going to reduce the VAT rate to 15%, there was much media coverage about how this may or may not help the economy, whether the high street will actually pass on the savings to consumers and as per usual, nothing much about how this affects the IT services that support the ever-increasing amount of small businesses that are moving online.

I’m sure I wasn’t alone in suffering a feeling of dread when I heard that the new rate is going to go into effect on the 1st December 2008, leaving us just 5 days to plan, implement & test any changes that need to be made. For the majotity of the businesses I run sites for, this was a minor thing since I tend to follow these simple rules:

• Store the VAT charged with the payment record - don’t rely on coding to calculate it post-transaction
• Store the VAT amount in a configuration file or database value - never hard code it

In these cases all I need to do is change the VAT amount on the morning of the 1st and everything will be fine. There is one company though that wasn’t so easy to change.

VAT & Services
Our primary client, Medicology, provides services in the form of training courses. People decide to book onto one of their courses, usually well in advance and they receive a 28 day invoice which is then paid. In this companies case, the tax point (the point at which the VAT is calculated and paid) is the point at which the course is run. This has major implications for them:

• If a customer had booked onto a course in September, they would have been invoiced at 17.5%
• However, if the course they are attending runs in January, they should have been invoiced at 15%
• This would therefore require the original invoice to be credit noted at n17.5% and then a new invoice generated at 15%

This was potentially devastating for the company as they may have hundreds of invoices, some paid, some unpaid which need credit noting, re-invoicing and in some cases, refunds issued and new payments taken.

Luckily, due to the short notice, the HMRC has said they will waive this process and let the existing invoices stand. This will save the company hundreds of man-hours and thus thousands of pounds. From a customer point of view, they are not loosing out by paying the extra VAT since the majority of courses are paid for by the NHS Trusts who can claim back the VAT, whatever the amount.

I will be keeping a close eye on the press for what will happen in 13 months time when the rate will increase and my guess is, the government won’t be so kind about letting people off paying additional VAT. In this case, their courses running in 2010 may have to be re-issued so as soon as the new VAT rate is announced, I will be making changes ot the system to calculate the VAT amount based on the tax point as opposed to the current amount.

I just hope they decide the amount sooner rather than later

This entry was posted on Friday, November 28th, 2008 at 12:20 pm and is filed under Software, Web Development. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.