One of my clients has a customer that pays in advance for the work he has done. He pays on the first of the month by standing order. Am I right in requesting that the customer changes his standing order for 1st January to include the 20% VAT, even though the rate doesn't actually change until 4th January? He will receive the actual invoice at the end of January for work which is done/completed after 4th January.
That's difficult because if one was on cash accounting and the payment was received on 1st January it would be at 17.5% as the tax rate at that date had not changed. Many invoices are paid in advance eg rent (3/6 months in advance), maintenance contracts paid 12 months in advance etc.
If, say, one had paid for computer maintenance in July this year which covered the period Aug 2010 to July 2011 the VAT on it would have been at 17.5% because at that point in time the announcement of the new 20% rate had not been made. Therefore any prepayment (as long as this is a usual one and not made to avoid the extra 2.5%) I would think would be legitimate at the old rate.
As we have discussed before, it's all to do with the tax point date.
Thanks for the reply. Yes, my client is on cash accounting for VAT. So, to get round this, could we do them an invoice dated 1st January and send it to them with 17.5% VAT even though the work probably won't be done until after 4th January? As they pay in advance I'm sure they won't mind being invoiced in advance of the work.
