Are freelancers ready for the 2010 VAT changes?

In his 2008 Pre-Budget Report, Alastair Darling announced a reduction in the standard rate of VAT from 17.5 per cent to 15 per cent.

The change was effective almost immediately (from 1st December 2008), and will apply up to and including 31st December 2009, after which it will revert back to 17.5 per cent.

VAT registered Limited company contractors and those that sell mainly to other VAT-registered businesses (end clients and recruiters) will need to apply the 17.5 per cent rate for all invoices issued on or after 1st January 2010.

However, if the actual 'service' was provided more than 14 days before the VAT invoice is issued (i.e before 18th December 2009), OR payment was made before 1st January 2010, the old VAT rate of 15 per cent applies.

As well as reversion of the 17.5 per cent rate, The Chartered Institute of Taxation (CIoT) has also advised of further changes to the VAT rules governing cross-border services. Contractors and freelancers supplying professional or 'management services' will need to pay attention to the new rules, which will also come into effect on 1st January 2010.

At present, these services are treated, for tax purposes, as being delivered in the country where the business supplying them is based. However, from next year the vast majority of such services will be seen to have been supplied where the customer (the business receiving the service) is established.

The reforms are designed to prevent service providers from reducing their VAT bill by locating outside the EU, or in the EU member states with the lowest VAT rates.

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