V3.142A Increase in VAT rate to 17.5%
In respect of the reversion of the standard rate of VAT to 17.5% with effect from 1 January 2010, anti-avoidance legislation1 was introduced to prevent forestalling. The legislation provides that a supplementary VAT charge of 2.5% will apply where the customer cannot recover all the VAT on the supply and:
• the supplier and the customer are connected parties
• the supplier funds the purchase of the goods or services (or the grant of the right to receive them)
• a VAT invoice is issued by the supplier where payment is not due for at least six months
The supplementary charge also applies where a pre-payment of more than £100,000 is made before the increase in the rate of VAT in respect of goods or services (or the grant of a right to receive goods or services) which are to be provided on or after the date of the increase, unless the pre-payment is made in accordance with 'normal commercial practice', ie normal commercial practice at a time when there is no expected VAT increase2. This provision has effect from 31 March 2009 but applies, for the most part, on a retrospective basis from 25 November 2008.
The legislative provisions relating to the supplementary charge are contained in FA 2009, s 9, Sch 3, and are described below.
Conditions for charge
The supplementary charge applies to supplies made (subject to certain exclusions) on or after 25 November 2008. It only applies where the conditions set out