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Notes on the change to standard rate of VAT from 4 January 2011.
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 17.5%)
503 - EU Purchases of standard rate goods (Rate 0%)
There are three ways in which the increase in the VAT Rate from 17.5% to 20% 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 (17.5% to 20%)
403 - Home purchases of standard rate goods (17.5% to 20%)
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 20%)
and add new VAT Code records:
104 - Home sales at standard rate of 20%
404 - Home purchases at standard rate of 20%
This is the recommended option.
Option 3
Add a new VAT Group as before:
04 - Old standard rate (ie 17.5%)
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 20%
403 - Home purchases at new standard rate of 20%
104 - Home sales at old standard rate of 17.5%
404 - Home purchases at old standard rate of 17.5%
The disadvantage of this method is that sales history of invoices and credit notes for previous years 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 04/01/2011 or after:
Method 1
1. Run control file maintenance VXYZZ to amend 17.5% rates to 20%
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 20% 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 Product Class VAT Change (stk45) to change VAT Group (eg "was" 03, "should be" 04) on all relevant product class records.
4. Run Automatic Price, Cost and VAT Change (stk05) to change VAT Inclusive Rate (eg “was” 17.5%, “should be” 20%). This will also recalculate any VAT inclusive prices. (For rounding check the value of fieldlen variable PRICES with changesize)
5. Run sodvat which changes the vat code (sovat2) in detail lines of current sales orders.
6. 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.
7. 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 17.5% rates to 20%
2. Run control file maintenance VXYZZ to add records with 17.5% 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 Automatic Product Class VAT Change (stk45) to change VAT Group (eg "was" 03, "should be" 04) on all relevant product class records.
5. 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.)
6. Run stk45 a second time to change VAT Group back (eg "was" 04, "should be" 03) on all relevant product class records.
7. 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.