New Year – New VAT rates

As you will no doubt be aware from the recent publicity, the VAT rates will go up from 17.5% to 20% on 4 January next year.

This means that 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. There are no changes to sales that are zero-rated or reduced-rated for VAT and any sales you make at these rates are unaffected by this change. Similarly, there are no changes to the VAT exemptions.

If you are currently registered for the VAT flat rate scheme then new rates and thresholds will also come into effect on 4 January.

The normal tax point rules will still apply. This means that if the invoice is raised or payment is made before 4th January, VAT will be added at the rate of 17.5%; anything after that date will be at 20%). However 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.

If you have a cash business you must use the VAT fraction of 1/6 on your standard-rated VAT inclusive sales from 4 January 2011. To increase your VAT inclusive prices to reflect the increase in the VAT rate to 20 per cent you should multiply your old prices by 120/117.5.

If you are looking for more detailed information about the increase please give one of us a call on 01733 371180.

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