How do I handle the VAT rate change in my systems?

From 1 December 2008, the UK's standard rate of VAT will change to 15%. It will revert back to 17.5% just over a year later, on 1 January 2010.

It has been well over fifteen years since the standard rate was last changed. Modern systems simply haven't had to handle this, and some will be better designed than others to cope.

The official VAT guidance is at
http://www.hmrc.gov.uk/pbr2008/measure1.htm

Whilst the change will apply immediately on each date, there are a number of circumstances where the old VAT rate will continue to apply:

1. Refunds and credit notes should be made at the same VAT rate as originally charged
2. In certain sales situations where cash receipt, delivery and/or invoicing don't all take place on the same side of the change date
3. Supplier invoices need to be recorded according to the VAT actually charged

Therefore in practice there will be a transition period after each change when two standard rates will be in use for sales and purchases.

In most cases the standard rate in a system will be changed to 15% on 1 December, and later back to 17.5%. But for systems that allow multiple VAT rates, it's worth checking whether it would be better to set up a new 15% rate, and keep the old standard rate unchanged.

In any case, end-users need to be advised how to handle transition arrangements.