Note to Staff Involved in Receiving Income and Processing Expenditure

Change in rate of Value Added Tax (VAT) from 17.5% to 20% on 04/01/2011

In his 2010 Emergency Budget the Chancellor announced an increase in the standard rate of VAT from 17.5 per cent to 20 per cent effective from 4 January 2011.

This note gives some information on the change.

1 Income

VAT rules dictate that the tax point determines what rate of VAT is applicable. A tax point is determined by the earlier of a payment being received or a VAT invoice being raised.

Under the transitional arrangements, a VAT invoice issued on or after 4thJanuary 2011 for goods provided or services completed before 4th January 2011can still have VAT applied at 17.5%. If you are paying in monies which include VAT on or after the4th January 2011, the rate should be 17.5% if it relates to before that date.

Conversely, under the transitional arrangements, VAT may be charged at 20% on the amount received or invoiced prior to 4th January 2011 for goods or services provided after that date.If you are paying in monies which include VAT on or after 4thJanuary 2011, the rate should be 20% if it relates to after that date.

2. Expenditure

Every vatable invoice should have a tax point or date on it. The tax point or date will determine the rate of VAT that is applicable.You would normally expect to see the 17.5% rate prior to 4th January 2011 and the 20% after that date.

Any invoices dated before the 4th January 2011 should be paid under the old rate of 17.5%. Any invoices dated on or after 4th January 2011, should be paid at the 20% rate.

The emphasis is on the supplier to determine the correct rate of VAT. Under no circumstances should the VAT amount on a supplier invoice be changed.If you feel that a supplier has compiled an invoice incorrectly, you will need to ask them to produce a revised invoice.

3. FMS Changes

Schools will need to create two new codes for Input and Output VAT at the new 20% rate. This will need to happen at some point in January. As invoices will be arriving in January at both rates, it may be easiest to adjust the VAT rate where appropriate, when paying individual invoices, with a view to changing the default on all codes later in the month.

The codes may vary slightly in some schools from previous VAT changes, but for the majority we would advise using the following:-

C0023 VAT Input Standard 3

C08 VAT Output Standard 3

The new VAT ledger codes are created in Tools>General Ledger Set up>Ledger Codes. It is + to add a new code and then select either VAT input or VAT output for each of the two new codes. These will be Balance Sheet Account/Control codes. We are suggesting creating the new VAT code required here as P for Input and 6 for Output. The VAT rate is 20%.

Lisa Butler from the Schools Finance Team will be available to update your FMS if required. It is envisaged that it will take a maximum of an hour to create the new VAT codes and individually set the most frequently used system codes to default to the new rate. The cost of this service would be £50.If you require all system codes to be changed, this will take considerably longer and will be charged at £50 per hour pro rata. She can be contacted by email at or at the office on 020 8760 5610.