The standard rate of UK VAT is currently 17.5% but will be increased to 20% on 4th January 2011. This will introduce some additional complications for online sellers as, unlike most off line businesses which will be closed for the first few days of January due to bank holidays, you will need to account for sales during the first three days of January at the old rate of 17.5% and then at the new rate of 20% for the rest of the month.
For any sales of standard-rated goods or services that you make on or after 4th January 2011 you must charge VAT at the new 20% rate. If you have a cash business and calculate your VAT using the VAT fraction you must use the VAT fraction of 1/6 on your standard-rated VAT inclusive sales from 4th January 2011.
The change only applies to the standard VAT rate. There are no changes to sales that are zero-rated or reduced-rated for VAT. Similarly, there are no changes to the VAT exemptions. Any sales you make at these rates are unaffected by this change.
“As an online retailer you must use the 20% rate for all takings that you receive on or after 4 January 2011.”
As an online retailer you must use the 20% rate for all takings that you receive on or after 4 January 2011. But if your customer pays on or after 4th January 2011 for something they take away (or you deliver) before 4th January 2011, your sale actually takes place before 4 January 2011 and you should use the 17.5% rate.
Many online retailers use the Flat Rate VAT scheme in conjunction with the Cash Accounting Scheme for small businesses. This allows you to account for your VAT liability when you receive payment but it does not affect the tax point. Sales made before 4th January 2011 remain taxable at 17.5%, even when payment is received on or after 4th January 2011.
To determine your VAT liability for a particular transaction, you will first need to identify and separate all payments made and received so that you can identify the appropriate rate of VAT. You must then apply the flat rate percentage that was in place at the time of supply and not the rate that is in place when payment is received. You will probably need to refer back to the original transaction dates on eBay to ensure you account for the correct rate of VAT.
In short when you complete your VAT return you will need to account for all transactions made prior to the 4th January and calculate VAT at 17.5% regardless of when payment is actually received, and then identify all transactions where the sale date was from the 4th January onwards and calculate the VAT at the new 20% rate.
You will also need to change the VAT rate displayed on eBay at midnight on the evening of the 3rd January. Where this is not possible you’ll need to adjust invoices in eBay Selling Manager Pro, or your accounting program, before issuing them for any sales after this time to the new 20% VAT rate.
It’s likely that in addition to the complications that the change in the standard rate of VAT introduces to your accounting procedures you may also want to adjust the prices you’re selling at, especially for fixed price Buy-It-Now eBay listings. Fortunately here Frooition can help with the Frooition Bulk Revision Tool available to frooition eBay design customers .