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Notes on the change to standard rate of VAT from 1 January 2010.
When the standard rate of VAT changed from 17.5% to 15% in December 2008, it was the first change in the VAT rate for 17 years. While there were programs in the Ibix suite of programs to effect such a change there were other, newer files where changes were necessary but which had not been catered for. As a result and given the short lead time involved the changeover to the new rate was rushed. These notes are provided so that the next change, scheduled for 1 January 2010, can be managed better.
HMRC have published a guide to the rate rise.
Introduction
Ibix distinguishes between VAT Class which is a one character field associated with sales and purchase records and VAT Group which has 2 characters and is associated with products.
Typical VAT Classes might be:
1 - Home Sales
2 - EU Sales
3 - Rest of World Sales
4 - Home Purchases
5 - EU Purchases
6 - Rest of World Purchases
Typical VAT Groups might be:
00 - Exempt
01 - Zero Rated
02 - Reduced Rate
03 - Standard Rate
VAT Codes are combinations of VAT Class and VAT Group and are created in Control File Maintenance Record VXYZZ with fields for rate, description etc.
Using the examples above we would find the following codes (amongst others):
101 - Home sales of zero rated goods (Rate 0%)
103 - Home sales of standard rate goods (Rate 15%)
503 - EU Purchases of standard rate goods (Rate 0%)
There are three ways in which the increase in the VAT Rate from 15% to 17.5% can be put into effect:
Option 1
Simply change the rate in the existing VAT Code record as follows
103 - Home sales of standard rate goods (15% to 17.5%)
403 - Home purchases of standard rate goods (15% to 17.5%)
The disadvantages of this method is that VAT reports cannot distinguish between Goods and VAT at the old rate and Goods and VAT at the new rate and that credit notes for sales made at the old rate will charge VAT at the new rate.
Option 2
Add a new VAT Group
04 - New standard rate (ie 17.5%)
and add new VAT Code records:
104 - Home sales at standard rate of 17.5%
404 - Home purchases at standard rate of 17.5%
This is the recommended option.
Option 3
Add a new VAT Group as before:
04 - Old standard rate (ie 15%)
Amend existing VAT Code records to the new rate and add VAT Code records to hold the old rate.
103 - Home sales at new standard rate of 17.5%
403 - Home purchases at new standard rate of 17.5%
104 - Home sales at old standard rate of 15%
404 - Home purchases at old standard rate of 15%
The disadvantage of this method is that sales history of invoices and credit notes for 2009 would have to be updated where necessary to the "old" VAT Code.
After running invoice print and update and before raising any new invoices or credit notes with a Tax Point of 01/01/2010 or after:
Method 1
1. Run control file maintenance VXYZZ to amend 15% rates to 17.5%
2. Run upvat which brings the vate rate (sovrate) into line with the rate in VXYZZ records.on detail lines of current sales orders and amends the total vat amount for the order.
Method 2
1. Run control file maintenance VXYZZ to add records with 17.5% rate. (These should exist already if this method was used before.)
2. Run Automatic Price, Cost and VAT Change (stk05) to change VAT Group (eg "was" 03, "should be" 04) on all relevant stock records.
3. Run Automatic Price, Cost and VAT Change (stk05) to change VAT Inclusive Rate (eg “was” 15%, “should be” 17.5%). This will also recalculate any VAT inclusive prices. (For rounding check the value of fieldlen variable PRICES with changesize)
4. Run sodvat which changes the vat code (sovat2) in detail lines of current sales orders.
5. Run upvat which brings the vate rate (sovrate) into line with the rate in VXYZZ records.on detail lines of current sales orders and amends the total vat amount for the order.
6. Run control file maintenance Z000000X to check values of default stock vat code, default sales vat code and default G/l vat code. In fact stock and sales vat codes are vat groups (eg change from 03 to 04). G/l vat code is a vat code (eg change from 103 to 104).
Method 3
1. Run control file maintenance VXYZZ to amend 15% rates to 17.5%
2. Run control file maintenance VXYZZ to add records with 15% rate.
3. Run Automatic Price, Cost and VAT Change (stk05) to change VAT Group (eg "was" 03, "should be" 04) on all relevant stock records.
4. Run stk05 a second time to change VAT Group back (eg "was" 04, "should be" 03) on all relevant stock records. (This ensures that "old VAT Group" is correct.)
5. Run upvat which brings the vate rate (sovrate) into line with the rate in VXYZZ records.on detail lines of current sales orders and amends the total vat amount for the order.
Note
Running upvat affects Back, Advanced and Reserved Orders, Quotes, Despatch Notes and Standing Orders. It excludes Invoices, Lost Sales and Old Unit Surcharges.