Commentary

V3.142B Increase in VAT rate to 20%

Part V3 Supplies, acquisitions and imports

V3.142B Increase in VAT rate to 20%

V3.142B Increase in VAT rate to 20%

In respect of the increase in the standard rate of VAT to 20% with effect from 4 January 2011, 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 certain other conditions are met.

This provision has effect from 27 July 2010 but applies, for the most part, on a retrospective basis from 22 June 20102.

The legislative provisions relating to the supplementary charge are contained in Finance (No 2) Act 2010, s 3, Sch 2, and are described below.

Conditions for charge

The supplementary charge applies to supplies made (subject to certain exclusions) on or after 22 June 2010. It only applies where the conditions set out below are met.

Conditions applicable to supplies other than the grant of a right to goods or services

The supplementary charge only applies if3:

  1.  

    •     the supply spans the date of the VAT change, that is the actual tax point occurs prior to 4 January 2011 (ie an invoice is issued or payment received prior to that date), but the basic tax point (see V3.132, except in relation to 'listed supplies', for which see below) occurs on or after that date4

  2.  

    •     the supply is subject to VAT at the standard rate, and

  3.  

    •     the person to whom the supply is made is not entitled to recover all or part of the VAT on that supply, and

  4.  

    •     at

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