4th January 2011 – Increase in the Standard rate of VAT to 20%

VAT increaseTo all clients and blog followers please note that as of tomorrow HMRC VAT states that the following applies:

‘The standard rate of VAT is currently 17.5 per cent but increases to 20 per cent on 4 January 2011.

For any sales of standard-rated goods or services that you make on or after 4 January 2011 you must charge VAT at the 20 per cent rate. If you have a cash business and calculate your VAT using the VAT fraction you must use the VAT fraction of 1/6 on your standard-rated VAT inclusive sales from 4 January 2011.

The change only applies to the standard VAT rate. There are no changes to sales that are zero-rated or reduced-rated for VAT. Similarly, there no changes to the VAT exemptions. Any sales you make at these rates are unaffected by this change.

Sales that span the change in rate

There are special rules for sales which span the change of rate. If you provide goods or services before 4 January 2011 and raise a VAT invoice after that date you can choose to account for VAT at 17.5 per cent. You don’t need to tell HM Revenue & Customs (HMRC) if you do this.

Services you started before 4 January 2011 but finished afterwards

If you start work on a job before 4 January 2011 but finish afterwards you may account for the work done up to 3 January 2011 at 17.5 per cent and the remainder at 20 per cent. If you choose to do this you will have to be able to demonstrate that the apportionment is fair.

Continuous supplies of services

If you provide a continuous supply of services, such as leasing of photocopiers, you should account for the VAT due whenever you issue a VAT invoice or receive payment, whichever is the earlier. You must charge 20 per cent on invoices you issue and payments you received on or after 4 January 2011. You may, if you wish, charge 17.5 per cent on the services you’ve provided in the period up to 3 January 2011 and 20 per cent on the remainder. If you choose to do this you will have to be able to demonstrate that the apportionment is fair.

VAT invoices raised or deposits received before 4 January 2011 for sales you make afterwards

If you issue a VAT invoice or received prepayment before 4 January 2011 for goods or services which you provide on or after that date VAT will normally be due at the 17.5 per cent rate. In certain circumstances VAT is due at a rate of 17.5 per cent on the date of issue of the VAT invoice or receipt of payment before 4 January 2011 and a supplementary charge of 2.5 per cent then becomes due on the 4 January 2011.’

Please do get in touch if you experience any issues with this.

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