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Are you ready for the change in VAT? HM Revenue & Customs warns that the standard rate of VAT goes up to 20 per cent on 4 January 2011 – so it’s worth getting your business ready now.

Introduction

From Tuesday 4 January, you will need to charge the new 20 per cent VAT rate on all standard-rated sales you make from that day onwards.

If you’re in retail, you must use the new 20 per cent rate for all standard-rated takings you receive on or after 4 January. The new VAT fraction for the 20 per cent rate is 1/6 (used to calculate the VAT element of standard-rated gross takings).

If your business issues VAT invoices, you must use the new 20 per cent rate for all VAT invoices you issue on or after 4 January, which are issued within 14 days (or longer period that has been agreed with HMRC) of your providing the goods or services.

Supplies that Span the Rate Change

If you supply goods or services before 4 January 2011, but issue a VAT invoice on or after that date, you can choose to charge VAT at 17.5 per cent.

Continuous Supplies of Services

For a contract that started before 4 January you can choose to charge the old rate, 17.5 per cent, on services actually performed before 4 January, and the new rate of 20 per cent on the value of services actually performed after.

Reclaiming VAT

From 4 January 2011, you may receive VAT invoices with the new 20 per cent rate, as well as VAT invoices with the old 17.5 per cent rate for goods or services you bought before the rate changed. In such cases, you should claim back VAT at the rate shown on the invoice.

Completing a VAT Return

The deadlines for submitting VAT returns remain the same, so you should continue to submit VAT returns in the usual way – whether you send them monthly, quarterly or annually. For returns that span the change in rate, you will need to add together both the VAT on sales charged at 17.5 per cent and those charged at 20 per cent. You then put this total in box 1 of your VAT return.

Countering Arrangements Designed to Take Advantage of the VAT Rate Change

In order to counter businesses taking advantage of the VAT rate change by making arrangements that aim to apply the 17.5 per cent VAT rate to goods or services to be delivered or performed on or after 4 January 2011, anti-forestalling legislation has been introduced. Further details of this can be found in the web link VAT - Change of the Standard Rate to 20 per cent: Anti-Forestalling Legislation

Further Information

HMRC has published detailed guidance on the rate change, which can be found at Increase in the Standard Rate of VAT to 20 per cent.

For further information on other VAT and Excise matters, you can also contact the National Advice Service on 0845 010 9000.