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In connection with the reversion of the standard rate of VAT to 17.5% from 1 January 2010, anti-avoidance legislation¹ was introduced to prevent forestalling. The legislation provides that a supplementary VAT charge of 2.5% will apply where the customer cannot recover all the VAT on the supply and:

1. Ìý

   •ÌýÌýÌýÌý the supplier and the customer are connected parties

2. Ìý

   •ÌýÌýÌýÌý the supplier funds the purchase of the goods or services (or the grant of the right to receive them), and

3. Ìý

   •ÌýÌýÌýÌý a VAT invoice is issued by the supplier, where payment is not due for at least six months

The supplementary charge also applies where a pre-payment of more than £100,000 is made before the increase in the rate of VAT in connection with goods or services (or the grant of a right to receive goods or services), which are to be provided on or after the date of the increase. This is unless the pre-payment is made under 'normal commercial practice', ie normal