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Forthcoming changes to Value Added Tax (VAT) and Insurance Premium Tax (IPT)

Article Date: 10th November 2010

As you are no doubt aware the Government has announced that the VAT and IPT rates are to change from 4th January 2011. These changes will be reflected in our pricing from 4th January 2011 and for an existing customer with site(s) registered for a warranty are likely to affect you immediately.

I have detailed below how the Government is expecting these changes to be applied and therefore what the impact will be on you, our customer.

VAT
VAT will be based upon the invoice date; therefore as long as a development is fully registered with us and we have issued an invoice for it prior to the 4th January 2011 then the rate of VAT applied will be 17.5%.

Any new sites registered and invoiced on or after 4th January 2011 will have the new VAT rate of 20% applied to them.

HMRC anti-avoidance rules apply to ensure that developments cannot be registered early in order to avoid the increase in VAT. Therefore any development which has been registered and invoiced under the 17.5% rate must be paid for in full within six months of the invoice date, if not and the 6 month anniversary of the invoice date is on or after 4th January 2011 HMRC require us to apply the 20% VAT rate.

To ensure that VAT is paid at the correct amount it is important to ensure that all developments registered and invoiced before 4th January 2011 are paid in full within six months from the date of the invoice.

If a large development has been registered and an invoice rasied covering many units, some of which are not due to commence until after the expiry of the six month time period then there are two choices available:

  1. Pay the invoice in full within the six month period.
  2. Checkmate will issue a credit note and re-invoice those units which will commence after the six month payment period and charge the VAT rate of 20%.

IPT
IPT is chargeable at rate applicable on the date upon which the risk is attached to the insurance company. In the case of our warranty policies this will be the “Effective date” shown on the Insurance Certificate and as defined in the policy document. Given that this date is typically the date of our final inspection or the date of exchange of contracts of the purchase, whichever is the later; it is very likely that even those developments registered, invoiced and paid for by our customer are likely to attract an additional 1% of the premium element.

This is due to the fact that the risk is likely to attach to the insurer on or after 4th January 2011.

Checkmate will send an additional invoice for the outstanding sum which will need to be settled before any Insurance Certificates can be issued.

I do hope that you understand our position and our responsibility to collect the correct amount of VAT and IPT applicable.

Please do not hesitate to contact me or any member of the Checkmate team should you have any questions.

Regards

Paul Cooper
Joint Managing Director

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