In this section:
- VAT rates explained: standard, reduced, zero, exempt
- Rates of VAT on different goods and services
- VAT rates, thresholds, fuel scale charges, exchange rates
- Calculating VAT for VAT-inclusive and VAT-exclusive prices
- Trade sectors with special VAT rates, rules or concessions
- Increase in the standard VAT rate
Increase in the standard VAT rate
The standard rate of VAT was temporarily reduced to 15 per cent on 1 December 2008 and it will return to 17.5 per cent on 1 January 2010.
For any sales of standard-rated goods or services that you make on or after 1 January 2010 you must charge VAT at the rate of 17.5 per cent. If you have a cash business and calculate your VAT using the VAT fraction you must revert to the VAT fraction of seven fortysevenths from 1 January 2010.
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.
This guide tells you how to account for the change to the standard rate of VAT. It also tells you where you can get further information.
On this page:
- How to account for the VAT rate change
- Sales that span the change in rate
- Raising VAT invoices or receiving deposits before 1 January 2010 for sales you make afterwards
- Special VAT schemes for small businesses
- What VAT you can reclaim
- How to complete your VAT return
- How to correct an error on your VAT return
How to account for the VAT rate change
The way that you should account for the change in the VAT standard rate depends upon the type of business you have.
Retailers
If you are a retailer you must use the 17.5 per cent rate for all takings that you receive on or after 1 January 2010. But if your customer pays after 1 January for something they took away (or you delivered) before 1 January 2010, your sale took place before 1 January 2010 and you should use the 15 per cent rate.
Find out more about retail sales and the change in VAT rate
Businesses that issue VAT invoices
You must use the 17.5 per cent rate for all VAT invoices that you issue on or after 1 January 2010. But see our section below on special rules for sales that span the change in rate.
Read more about when to start charging the 17.5 per cent rate
Businesses operating beyond midnight on 31 December 2009
Special arrangements have been set up to help you account for the change in the VAT standard rate, if you are:
- a pub, club, restaurant or similar establishment
- a retail shop
- a provider of telecommunications
and your business will be operating beyond midnight on 31 December 2009.
Read more about the measures to help business
Sales that span the change in rate
There are special rules for sales which span the change of rate. If you provide goods or services before 1 January 2010 and raise a VAT invoice after that date you can choose to account for VAT at 15 per cent. You don’t need to tell HMRC if you do this.
Services you start before 1 January 2010 but finish afterwards
If you start work on a job before 1 January 2010 but finish afterwards you may account for the work done up to 31 December 2009 at 15 per cent and the remainder at 17.5 per cent. 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 photocopiers, you should account for the VAT due whenever you issue a VAT invoice or receive payment, whichever is the earlier. You must charge 17.5 per cent on invoices you issue and payments you receive on or after 1 January 2010. You may, if you wish, charge 15 per cent on the services you’ve provided in the period up to 31 December 2009 and 17.5 per cent on the remainder. If you choose to do this you will have to be able to demonstrate that the apportionment is fair.
Read more about when to start charging the 17.5 per cent rate
Read more about the special rules for sales that span the change in rate
Raising VAT invoices or receiving deposits before 1 January 2010 for sales you make afterwards
If you issue a VAT invoice or receive prepayment before 1 January 2010 for goods or services which you will provide on or after that date VAT will normally be due at the 15 per cent rate. In certain circumstances VAT is due at a rate of 15 per cent on the date of issue of the VAT invoice or receipt of payment before 1 January 2010 and a supplementary charge of 2.5 per cent then becomes due on the 1 January 2010.
Read more about pre-invoicing or pre-payment rules
Read more about whether the rules affect you
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 after 1 January 2010 that relate to supplies made before that date. VAT at a rate of 15 per cent 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
On 1 January 2010, the flat rates will broadly return to their November 2008 levels. HM Revenue & Customs will be reviewing the rates to check that they accurately reflect the VAT paid by businesses in each sector. Some adjustments may therefore be necessary. The flat rates will be finalised and published towards the end of 2009.
Read more about special VAT schemes and the change in VAT rate
What VAT you can reclaim
You can claim back the VAT you have been charged by your supplier in the normal way. You will still be receiving invoices after 1 January 2010 showing 15 per cent VAT relating to purchases you have made before the rate change. In these cases you should claim back VAT at 15 per cent.
Find out more about what VAT you can reclaim
How to complete your VAT return
You should continue to receive and submit VAT returns in the normal way - monthly, quarterly or annually. The deadlines for submitting your VAT returns and making payments are unchanged. For return periods that cover both before and after 1 January 2010, you will need to add together the VAT on sales charged at 15 per cent and the VAT on sales charged at 17.5 per cent to work out the total VAT on sales to be included in box 1 of your VAT return.
Read more about completing your VAT return and the change in VAT rate
How to correct an error on your VAT return
If you discover that you have made an error you can correct it in the normal way by making a voluntary disclosure or correcting it on your next return (subject to the normal limit).
More about correcting errors on your VAT return
If you do make mistakes accounting for the change of rate on your first VAT Return after the change, HMRC will only seek an adjustment if there is likely to be an overall revenue loss.
