VAT rate changes to 20% from 4 January 2011

From January 4 2011 the standard rate of VAT increases to 20%. If you are VAT registered then you must start charging VAT at 20% from 4 January 2011 for Supplies of standard rated goods and services made on or after 4 January 2011.

There are no changes to sales which are zero rated, or reduced rated or exempt for VAT.

Goods or services provided before 4 January 2011 where a VAT invoice is raised after that date: you can choose to charge VAT at either the old 17.5% or at the new 20% rate. You don’t need to tell the Taxman which you opt for.

Services started before January 4 2011 but finished afterwards

Where you start work on a job before 4 January 2011 but finish afterwards you can account for the work done up to January 3 2011 at 17.5% and the remainder at 20%. If you choose to this then you will need to demonstrate with evidence of how you worked out which supplies were charged at which VAT rate

Where you make a continuous supply of services, for example leasing equipment, you 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 received on or after January 4 2011. You may, if you wish, charge 17.5% on the services you’ve provided in the period up to 4 January 2011 and the remainder at 20%. If you choose to this then you will need to demonstrate with evidence of how you worked out which supplies were charged at which VAT rate

Where you issue a VAT invoice or receive an advance payment (deposit) before January 4 2011 for goods or services which you supply on or after that date, VAT will usually be due at 17.5%. If HMRC suspects tax avoidance VAT is due at a rate of 17.5% on the date of issue of the VAT invoice or receipt of payment before 4 January 2011 and a supplementary charge of 2.5% then becomes due on the 4 January 2011.

If you’re a retailer you must charge 20% VAT on takings which you receive on or after January 4 2011. But if your customer pays on or after January 4 2011 for something they take or you deliver before January 4 2011, you should charge 17.5% VAT.

Where you operate the flat rate scheme, the flat rate percentages have been re-calculated to reflect a standard rate of VAT of 20%. These percentages apply to supplies you make on or after January 4 2011. The new rates are shown in the table below.

Note, you can choose to operate the flat rate scheme if your VAT-exclusive turnover does not exceed £150,000. This is not affected by the change in the rate of VAT. However the turnover threshold for leaving the scheme has been increased to £230,000 including VAT.

Further reading

For detailed guidance refer to HMRC’s guide to VAT rate change

These following rates will apply from January 4 2011 until further notice.

Business category	Percentage applicable
Accountancy or book-keeping	14.5
Advertising	11
Agricultural services	11
Any other activity not listed elsewhere	12
Architect, civil and structural engineer or surveyor	14.5
Boarding or care of animals	12
Business services that are not listed elsewhere	12
Catering services including restaurants and takeaways	12.5
Computer and IT consultancy or data processing	14.5
Computer repair services	10.5
Dealing in waste or scrap	10.5
Entertainment or journalism	12.5
Estate agency or property management services	12
Farming or agriculture that is not listed elsewhere	6.5
Film, radio, television or video production	13
Financial services	13.5
Forestry or fishing	10.5
General building or construction services*	9.5
Hairdressing or other beauty treatment services	13
Hiring or renting goods	9.5
Hotel or accommodation	10.5
Investigation or security	12
Labour-only building or construction services*	14.5
Laundry or dry-cleaning services	12
Lawyer or legal services	14.5
Library, archive, museum or other cultural activity	9.5
Management consultancy	14
Manufacturing that is not listed elsewhere	9.5
Manufacturing fabricated metal products	10.5
Manufacturing food	9
Manufacturing yarn, textiles or clothing	9
Membership organisation	8
Mining or quarrying	10
Packaging	9
Photography	11
Post offices	5
Printing	8.5
Publishing	11
Pubs	6.5
Real estate activity not listed elsewhere	14
Repairing personal or household goods	10
Repairing vehicles	8.5
Retailing food, confectionary, tobacco, newspapers or children’s clothing	4
Retailing pharmaceuticals, medical goods, cosmetics or toiletries	8
Retailing that is not listed elsewhere	7.5
Retailing vehicles or fuel	6.5
Secretarial services	13
Social work	11
Sport or recreation	8.5
Transport or storage, including couriers, freight, removals and taxis	10
Travel agency	10.5
Veterinary medicine	11
Wholesaling agricultural products	8
Wholesaling food	7.5
Wholesaling that is not listed elsewhere	8.5