Busbys Chartered Accountants

20% VAT Changes 4 January 2011

You will no doubt be aware that the standard rate of VAT is being increased on 4 January 2011 from 17½% to 20%. To help you implement this change. H M Revenue & Customs (HMRC) have issued a helpful guide on the internet, you can access it on their website - http://www.hmrc.gov.uk/vat/forms-rates/rates/rate-increase.htm.

The key points to note are:

  • Only the standard rate of VAT has been changed. There are no changes to zero rated and lower rated (5%) goods and services, nor are there any changes to the VAT treatment of exempt supplies.
  • The relevant fraction for calculating the amount of VAT on VAT-inclusive items changes from 7/47ths to 1/6th.
  • Care needs to be taken with supplies made just before or just after 4 January. More details are at the foot of this page, or please refer to the VAT help guide which can be accessed from HMRC’s website: http://www.hmrc.gov.uk/vat/forms-rates/rates/rate-increase.htm
  • Care also needs to be taken if you use cash accounting to account for your VAT. Again, more details at the foot of this page and on the HMRC website.
  • If you use the Flat Rate Scheme, the rates will change with effect from 4 January 2011. For a complete list of the new rates, see the detailed guide published on http://www.hmrc.gov.uk/vat/start/schemes/flat-rate.htm#5a
  • You can still claim back 17½% VAT if you are charged at the old rate.
  • For VAT returns that end on 31 January, 28 February or 31 March 2011, you will need to include VAT that is charged or claimed back at both rates.

If you use electronic methods to record your transaction, changes will need to be made, preferably as soon as possible after you open for business today. Further details at the foot of this page.

We are here to help you implement these changes, and please do not hesitate to contact us if you are in any doubt about what to do.

Please also remember that if you do make a mistake, small errors can be corrected on the next VAT return. If you make a large error (more than £10,000 of VAT), this can be disclosed separately without penalty, although interest will normally be charged if you have underpaid VAT. Further information can be found on the HMRC website link above.

We hope you find this information helpful, if you do require any assistance with these VAT changes or VAT in general then please do not hesitate to contact David Meredith, Carolyn Gore or Debbie Nelson-Gracie, details are on our Contact Us page.

More info... Supplies near 4 January 2011
More info... Cash Accounting near 4 January 2011
More info... Changes to Computerised Systems