HMRC announces ‘light touch’ approach to VAT rate change

25 11 2009

HMRC have said that it will be applying a ‘light touch’ approach if businesses make mistakes on their returns following the upcoming change in the standard rate of VAT.

The VAT rate will revert back to 17.5%, from 15%, after midnight on 31st December 2009. The only exceptions to this are restaurants, bars, pubs and clubs, who can still sell alcohol at the 15% rate until 6am, January 1st. The idea behind this exception was so that it didn’t confuse drinkers when after midnight, their drink became more expensive!

The HMRC have said that they have issued it’s staff with guidance on how to handle the first VAT return following the switch. This will involve operating a ‘light touch’ for any errors that are related to the change in rate.

In practical terms, HMRC said It would not target change-of-rate errors that are unlikely to lead to any net revenue loss. In other words, should they find any change-over mistakes, it will not seek an adjustment unless there is reason to believe that there is an overall revenue loss.

In the case of customers who can’t claim back VAT, and where there is likely to be an overall loss of tax, HMRC said it will look to make an adjustment in the usual way. However, it will take into account any difficulties the business may have faced in adjusting to the new rate, when considering if any penalties should be issued.

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