Selling/buying - VAT hike in January

pidgeonpost

Hi - our house went on the market in May, we accepted an offer in September, and also put in an offer on our next house, which was accepted.
On the face of it the chain couldn't be simpler. Our buyers had sold, had most of the money in the bank, and had had a small mortgage approved and ready to rock.
The people we are buying from are moving into rented accommodation for a while, so no problems their end. So in theory we could have Exchanged and Completed by now, but due to a last minute hiccup this is likely to run into the new year - when, of course, VAT goes up. Am I being wildly optimistic/naive/stupid to hope that because our transactions were begun in 2010 we won't get hit by the new rate? Some good news would be ....er....good!

poppysarah

Is the rise in VAT a problem for you?

You could force a completion before then if you are desperate.

googler

HMRC have already stated they have no problem with work done on an ongoing basis which spans 4/1/11 being accounted for at two VAT rates, however it's open to debate whether or not the accounting at the business carrying out the work could cope or would be willing to cope.

If not split, the VAT rate is that which applies at the date the invoice for the work is raised.

However, guidelines are at https://www.hmrc.gov.uk - get it from the horse's mouth there, rather than relying on what I or others here have read.

pidgeonpost

Thanks 'poppysarah' and 'googler'. We'd LOVE to complete before Christmas and were hoping for next week. Having just spent a month following incorrect advice regarding an easement, we have just been advised that this needs to be rejigged, and we think that sorting this may run into January.
Some interesting points from you 'googler'. I will have a look at HMRC site and also talk to solicitor.

Thanks again.....

notisis

I work for a firm of solicitors and the guidelines mean that if the time spent on the transaction is up to 31 Dec 2010 then VAT will be at the 17.5% rate. Any work to be billed after this date is at the new 20% rate. So even if your solicitors (or estate agents or anyone else) dates the bill for January or later they can still charge you at the old VAT rate for the portion of work carried out prior to 1 January. If your solicitors say otherwise I'm sure Revenue & Customs and the Law Society will be very interested! Any bill should show the breakdown of costs at the old rate and the new rate.

If you are pretty much ready to complete now bar a hiccup then the bulk of the work has already been done so only the last bit carried out in January will carry the 20% rate so shouldn't be much. Removal costs will be different as they will have to charge VAT at the new rate.

Re the point raised by Googler above, all accounting systems used by law firms (unless the law firm is a one man band using old fashioned paper accounting!) will have the ability to juggle a number of different vat rates so long the accounts department have set up the vat codes correctly in readiness. It will automatically assign the correct vat rate to each period. We had a reminder from our practice management suppliers on how to do this emailed to us last week and all the main software providers to the legal profession will have done this too.

timmyt

notisis wrote: »

I work for a firm of solicitors and the guidelines mean that if the time spent on the transaction is up to 31 Dec 2010 then VAT will be at the 17.5% rate. Any work to be billed after this date is at the new 20% rate. So even if your solicitors (or estate agents or anyone else) dates the bill for January or later they can still charge you at the old VAT rate for the portion of work carried out prior to 1 January. If your solicitors say otherwise I'm sure Revenue & Customs and the Law Society will be very interested! Any bill should show the breakdown of costs at the old rate and the new rate.

If you are pretty much ready to complete now bar a hiccup then the bulk of the work has already been done so only the last bit carried out in January will carry the 20% rate so shouldn't be much. Removal costs will be different as they will have to charge VAT at the new rate.

Re the point raised by Googler above, all accounting systems used by law firms (unless the law firm is a one man band using old fashioned paper accounting!) will have the ability to juggle a number of different vat rates so long the accounts department have set up the vat codes correctly in readiness. It will automatically assign the correct vat rate to each period. We had a reminder from our practice management suppliers on how to do this emailed to us last week and all the main software providers to the legal profession will have done this too.

solicitors do not have to do this. And they could hardly be cricisied. Same with any business. Conveyancers bill at the end. They do not double up on admin, as that itseld comes at a cost and the lawyers time.

farmerboy

I know we're on a money saving website, but just a perspective that the increase equates to £2.50 of extra vat per £100 of service/goods

pidgeonpost

Thanks to all - particularly helpful comments from 'notisis'. Not sure I follow exactly what you say 'timmyt' - care to elaborate?

I know that the VAT on the conveyancing itself will not make a massive difference to the overall cost, but it mounts up if it's added to the Estate Agent's fees, removal costs, and all the other things that would have had the old rate applied had we been able to move a month ago as planned originally. Besides, we're both pensioners and you've gotta watch these things!

Richard_Webster

My understanding of the ruling is that we can choose whether to apportion the work and charge VAT @ 17.5% for the 2010 work and @ 20% for the 2011 work or simply to charge at the new rate if the invoice is raised in 2011.

On a £500 bill the VAT is presently £87.50 and it will be £100.00.

Suppose I do £400 worth of work in 2010 and £100 in 2011. This means VAT of £70 and £20 respectively so that would be £90, a possible saving of £10. Unfortunately it is going to take me more than £10 worth of time fiddling around producing non-standard bills, so, sorry, it will all be at the new rate is the matter completes in 2011.

For practices that do a lot of litigation or other work that is time costed they can record hours in 2010 and 2011 separately and maybe the software will calculate the different VAT rate as someone has already suggested, but for those of us who don't time cost this is not practicable.

When I give someone an estimate the software records the amount I am going to charge and that eventually gets incorporated in the bill, which has standard wording depending on whether sale, purchase etc and whether or not there is a mortgage etc.

Nuttyneddy

When it became apparent that our buyer did not want to complete until January I asked this question of my Estate Agents and they said that as long as exchange was before the VAT rate changed the VAT on their bill would be at 17.5% (i.e. the tax point of their invoice would be the date of exchange).

I'm expecting the solicitors to bill us on the date of completion so I would expect to pay 20% on their invoice, although I'd be happy if they chose an earlier tax point!

VAT on your removal costs will be at 20% if you move after 5th January as the tax point for the invoice will be the date the work was carried out (i.e. moving date)

pidgeonpost

Thanks all. I guess we'll mention it to our solicitors next week. Unfortunately they have just demolished our last hope of completing before Christmas so we're feeling pretty grumpy right now.