Increase in the standard rate of VAT to 20%

The standard rate of VAT is currently 17.5 per cent but will be increased to 20 per cent on 4 January 2011.

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. If you have a cash business and calculate your VAT using the VAT fraction you must use the VAT fraction of 1/6 on your standard-rated VAT inclusive sales from 4 January 2011.

The change only applies to the standard VAT rate. There are no changes to sales that are zero-rated or reduced-rated for VAT. Similarly, there are no changes to the VAT exemptions. Any sales you make at these rates are unaffected by this change.

Take a look at the H M Revenue and Customs website where they have a guide which tells you how to account for the change to the standard rate of VAT. It also tells you where you can get further information.