UK VAT Rate Changes - FAQ's

As you will be aware, the government announced a temporary VAT rate change on some goods and services from 20% to 5%. This may result in you needing to make some changes to the VAT rates in your Sage system. This page covers a summary of the changes announced and the steps you need to take in your Sage 300 system.

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1) Dates of changes and what supplies are affected?

The 5% rate will apply from 15th July to 12 January 2021 on the following supplies:

• Food and non-alcoholic beverages sold for on-premises consumption, for example, in restaurants, cafes and pubs.
• Hot takeaway food and hot takeaway non-alcoholic beverages.
• Sleeping accomodation in hotels or similar establishments, holiday accomodation, pitch fees for caravans and tents and associated facilities.
• Admissions to theatres, circuses, fairs, amusement parks, concerts, museums, zoos, cinemas, exhibitions and similar cultural events and facilities (note that if any of these attractions are covered by the existing cultural exemption, the exemption will take precedence.

2) How do I calculate the new VAT rate where prices are VAT inclusive?  

To calculate the VAT amount on a VAT inclusive price, you should use the VAT fraction to work out the VAT element.

The VAT fraction for the 5% rate is 1/21.

3) What rate of VAT do I use for deposits and supplies that span the change in rate?

This has not been confirmed yet but we believe that HMRC are likely to allow businesses to choose whether the new rate can apply to deposits and supplies that span the change.

We expect the following treatment to apply:

• Goods - If you have received a deposit or payment for goods before the change but do not actually supply the goods until after the VAT rate change, it is likely that you will be able to choose to apply the new rate of VAT.
• Services - If you supply a service after the change in rate but have received payment e.g. a deposit before, it is likely that you will be able to choose to apply the new rate of VAT.

4) What about supplies made before 15th July 2020, but where the invoice is issued afterwards?

The general tax point rules will apply in this scenario. The basic tax point rules are: 

• Goods - The date the goods are sent or taken away by your customer or made available to your customer.
• Services - The date the service is performed or completed.

That is:

• If before the basic tax point you issue a VAT invoice or receive payment for the goods/service - the tax point will be the date of the VAT invoice or the date when payment is received - whichever happens first.
• If you issue a VAT invoice up to 14 days after the basic tax point, then the tax point is the date the invoice is issued. In this scenario, the new rate will apply if an invoice is issued on or after 15th July 2020 and the service or goods were supplied up to 14 days before 15th July 2020. Otherwise the standard rate will apply to your supply.

5) What rate do I use for refunds/credit notes of goods/services supplied before the change?

The rate of VAT to be used for refunds/credit notes in the one that was in force at the time of the original supply.

6) Are there any changes to the input tax I can reclaim?

For supplies received before 15th July 2020 that are affected by the change, you can continue to claim the 20% where it has been charged correctly on the invoice.

After the VAT rate change, you must ensure you are claiming the new rate on applicable supplies. If your supplier invoices you at the incorrect VAT rate, we recommend that you return the invoice to them and ask for a new invoice to be issued at the correct rate of VAT.

7) My VAT return includes invoices issued at both the old and new rate of VAT and is due to be submitted after the new rate is introduced. What rate of VAT is due?

You will need to account for VAT at both rates, so at 20% before 15th July 2020 and 5% thereafter as charged on your sales invoices.

8) What changes do I need to make to my Sage 300 system?

We recommend a new Tax class in set-up for both Vendors and Customers. The following guide will take you through the step required.

Please download our guide on changing and adding a new VAT rate on Sage 300 or contact our support team for further assistance.