A Guide to the VAT Increase

An increase in the standard rate of VAT from 17.5 per cent to 20 per cent, was announced by George Osborne in the 2010 Emergency Budget.

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