The VAT rise will come into effect on 4th January 2011, as the coalition try to tackle the budget deficit. The increase is hoped to reduce the deficit by £13 billion.
George Osborne has been criticised by the Labour Party for making the increase.
The Chancellor defended the decision to raise VAT and claimed that it will boost employment.
The Facts:
Effects on Businesses
-The VAT increase affects any VAT registered business that sells or purchases goods or services that are subject to the standard VAT rate
-You should charge the increased rate of VAT (20%) on any sales of standard rated goods or services that you make on or after the 4th January 2011
-You should update your paperwork and your invoices
-You should update your prices
-Returned goods that a customer purchased prior to the increase in VAT should be credited at the previous rate of 17.5%
VAT is not applicable to:
-Food, children's clothing, books, magazines and newspapers
For a detailed guide to the VAT increase visit: http://www.hmrc.gov.uk/vat/forms-rates/rates/rate-rise-guidance.pdf