Talk To Us

On 4th January 2011 the standard rate of VAT will rise to  20%. As in January 2010, this change will have various implications for  businesses. For any sales of standard-rated goods or services  that you make on or after 4th January 2011 you must charge VAT at the  rate of 20%.

Other rates of VAT are not affected. This change in the standard rate of VAT does not affect sales of goods or services that are charged at  another rate, i.e. Zero, reduced or exempt.

If your business only supplies goods or services that are subject to  one of these other rates you do not have to change the rate of VAT that you charge.

Businesses that issue VAT invoices

If your business issues invoices, you must use the 20% rate for all  VAT invoices that you issue on or after 4th January 2011. There are  other issues to consider:
* 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%. You don’t need to tell HM Revenue & Customs (HMRC) if you do this.
* If you start work on a job before 4th January 2011 but  finish afterwards you may account for the work done up to 3 January 2011  at 17.5% and the remainder at 20%. 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 equipment, you should account for the VAT due whenever you  issue a VAT invoice or receive payment, whichever is the earlier. You must charge 20% on invoices you issue and payments you receive on  or after 4th January 2011. You may, if you wish, charge 17.5% on the  services you’ve provided in the period up to 3rd January 2011 and 20% on the remainder. If you choose to do this, you will have to be able to  demonstrate that the apportionment is fair.

Web-based businesses

Businesses supplying goods or services over the internet to end consumers (who are not VAT registered businesses) will need to think carefully about what will be needed, in order to implement price changes. If you provide pre-printed price lists and order forms, you may also need to take further steps to prepare.

The Retail Industry

If you are a retailer you must use the 20% rate for all takings that you receive on or after 4 January 2011. But if your customer pays on or after 4 January 2011 for something they  take away (or you deliver) before 4 January 2011, your sale takes place  before 4 January 2011 and you should use the 17.5% rate.

Retailers have 30 days to update their tills, but must display a sign informing customers of the change in the interim. Therefore retail businesses also need to take into account the practical implications re-pricing will have.

Input Tax

The rate of VAT on standard rated goods and services that your  business purchases will obviously be higher and therefore input tax  claims will increase.

Special VAT schemes for small businesses

Cash Accounting Scheme
If you use the Cash Accounting Scheme you will need to be able to  identify payments received on or after 4 January 2011 that relate to  supplies made before that date. VAT at a rate of 17.5% will be due on  these payments.

Annual Accounting Scheme
Your instalments will not be affected by the change in the standard VAT rate.

Flat Rate Scheme
The flat rate percentages have been re-calculated to reflect a standard rate of VAT of 20%. The new rates apply from 4 January 2011  until further notice.

To find out what the new flat rate is for your industry sector, click here  (scroll down to the bottom of the document)

You can choose to operate the Flat Rate Scheme if your VAT exclusive turnover does not exceed £150,000. This turnover figure is VAT  exclusive so it is not affected by the change in the standard rate of  VAT.

Currently you must leave the Flat Rate Scheme if your income (including VAT) exceeds £225,000. However, if your income exceeds this threshold  because of a one off transaction and you expect that your income will  fall below £187,500 in the next year, you can remain in the Flat Rate  Scheme.

These thresholds will be increased to £230,000 and £191,500  respectively, with effect from 4 January 2011, to reflect the increase  in the standard rate of VAT.


If you make a mistake, you should correct it through the normal error correction procedures, either in the current VAT return, or for larger mistakes, using form VAT 652. HMRC have stated they will adopt a  “light touch” in dealing with errors made in the first VAT return after  the change, where the error relates to a change of rate issue.

If you would like to talk through the VAT standard rate change then please e-mail us at or call 0845 201 1582

Book a Call

Find out what a Wow accountant could do for you.


Award Winner

Platinum Partner arrow-right-small