VAT Rate Changes
The main rate of VAT changes from 17.5% to 20% on 4 January 2011. This change affects any VAT registered business that sells or purchases goods or services that are subject to the standard rate of VAT. You should charge VAT at the rate of 20 per cent on any sales of standard rated goods or services that you make on or after 4 January 2011 and it will be vital to ensure that your accounting software and till systems are altered to reflect this change. Other rates of VAT are not affected, so zero-rated, reduced rate and exempt supplies are unaffected. If you are a business that sells mainly to other VAT registered businesses and have to issue VAT invoices, you should use the 20% rate for all VAT invoices that you issue on or after 4 January 2011 and which are issued within 14 days of you providing the goods or services There are special rules for supplies which span the change of rate. Under these rules if you provide goods or perform services before 4 January 2011 and raise a VAT invoice on or after that date you can choose to account for VAT at 17.5 per cent. You don’t need to tell HMRC if you do this. If your supplies include VAT at the standard rate, you need to apply the new VAT fraction of 1/6 to work out the amount of VAT included in the gross sale, so a VAT inclusive sale of £100 will include £16.67 of VAT. HMRC have said they will take a light touch approach to errors made in the first VAT quarter after the change, but there are bound to be many queries when it comes to the practicalities, so please do phone us if you would like specific advice.
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