VAT is going up!

The standard rate of VAT is going up to 20% on 4 January 2011.

You should therefore start charging VAT at 20% on any standard rated goods or services that you supply on or after this date.

Other rates of VAT are not affected. The change in the standard rate of VAT does not affect sales of goods or services that are charged at other rates i.e. zero, reduced or exempt supplies.

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

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 (unless you are on the VAT Flat Rate Scheme).

Flat Rate Scheme

Do not make the error of assuming that your flat rate will go up by 2.5%! Several people were caught out by this last time VAT rates changed.

To find out the flat rate you should be using with effect from 4 January 2011, please follow this link to HMRC’s notice VAT FRS changes – the new rates are detailed on the last two pages. You need to select the rate for the business category that you originally declared.

Mistakes!

If you make a mistake, simply correct it through the normal error correction procedures in your current VAT return. For larger mistakes (over £10,000) complete form VAT 652. HMRC has stated it will adopt a light touch when dealing with errors made in the first VAT return following the change, where the error relates to a change of rate issue.

If you would like to talk about the VAT standard rate change and its implications, please call us on 01923 800444 or email us at experts@meadesandco.co.uk