VAT Increase

  
The standard rate of VAT increased from 17.5 per cent to 20 per cent today, 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% 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.

If you provided goods or services before 4 January 2011 and raised a VAT invoice on or after that date you can choose to account for VAT at 17.5%. You don't need to inform HMRC if you do this. If you started work on a job before 4 January 2011 but finish afterwards you may account for the work done up to 3 January at 17.5% and the remainder at 20%. If you choose to do this you have to be able to demonstrate that the apportionment is fair.

If you provide a continuous supply of services you should account for the VAT due whenever you issue a VAT invoice or receive payment, whichever is the earlier.

If you are a retailer you must use the 20% rate for all takings that you receive on or after 4 January 2011 unless your customer took away the goods (or you delivered) before 4 January 2011, in which case you should use the 17.5% rate. As a retailer you have 28 days to adjust your display prices and during this period you can put up a notice to let your customers know that an adjustment will be made at the till to account for the VAT change. This could lead to some "interesting" conversations.