Accounting for VAT when the standard rate of VAT returned to 17.5 per cent

The standard rate of VAT was temporarily reduced to 15 per cent on 1 December 2008 and returned to 17.5 per cent on 1 January 2010. On 4 January 2011 the standard rate increased to 20 per cent.

For any sales of standard-rated goods or services you made between 1 January 2010 and 3 January 2011 inclusive you should have charged VAT at the rate of 17.5 per cent. If you have a cash business and calculate your VAT using the VAT fraction you should have reverted to the VAT fraction of seven fortysevenths for the same period.

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

This guide tells you how to account for the change to the standard rate of VAT to 17.5 per cent. It also tells you where you can get further information.

On this page:

How to account for the VAT rate change to 17.5 per cent

The way that you should have accounted for the change in the VAT standard rate to 17.5 per cent depends upon the type of business you had at the time.

Retailers

If you were a retailer you should have used the 17.5 per cent rate for all takings that you received between 1 January 2010 and 3 January 2011 inclusive. But if your customer paid after 1 January 2010 for something they took away (or you delivered) before 1 January 2010, your sale took place before 1 January 2010 and you should have used the 15 per cent rate.

Find out more about retail sales and the change in VAT rate (PDF 248K)

Businesses that issue VAT invoices

You should have used the 17.5 per cent rate for all VAT invoices that you issued on or after 1 January 2010 and before 4 January 2011. But see our section below on special rules for sales that spanned the change in rate.

Read more about when to have started charging the 17.5 per cent rate (PDF 248K)

Businesses that operated beyond midnight on 31 December 2009

Special arrangements were set up to help you account for the change in the VAT standard rate, if you were:

  • a pub, club, restaurant or similar establishment
  • a retail shop
  • a provider of telecommunications

and your business operated beyond midnight on 31 December 2009.

Read more about the measures to help business

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Sales that spanned the change in rate

There are special rules for sales which spanned the change of rate. If you provided goods or services before 1 January 2010 and raised a VAT invoice after that date you could choose to account for VAT at 15 per cent. You did not need to tell HMRC if you did this.

Services you started before 1 January 2010 but finished afterwards

If you started work on a job before 1 January 2010 but finished before 4 January 2011 you could have accounted for the work done up to 31 December 2009 at 15 per cent and the remainder at 17.5 per cent. If you chose to do this you had to be able to demonstrate that the apportionment was fair.

Continuous supplies of services

If you provided a continuous supply of services, such as leasing of photocopiers, you should have accounted for the VAT due whenever you issued a VAT invoice or receive payment, whichever was the earlier. You had to charge 17.5 per cent on invoices you issued and payments you received between 1 January 2010 and 3 January 2011 inclusive. You could , if you wished, have charged 15 per cent on the services you provided in the period up to 31 December 2009 and 17.5 per cent on the remainder provided before 4 January 2011. If you chose to do this you had to be able to demonstrate that the apportionment was fair.

Read more about when to have started charging the 17.5 per cent rate (PDF 248K)

Read more about the special rules for sales that spanned the change in rate (PDF 248K)

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VAT invoices raised or deposits received before 1 January 2010 for sales you made afterwards

If you issued a VAT invoice or received prepayment before 1 January 2010 for goods or services which you provided on or after that date VAT was normally due at the 15 per cent rate. In certain circumstances VAT was 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 became due on the 1 January 2010.

Read more about pre-invoicing or pre-payment rules (PDF 248K)

Read more about whether the rules affect you (PDF 83K)

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Special VAT schemes for small businesses

Cash Accounting Scheme

If you use the Cash Accounting Scheme you needed to be able to identify payments received between 1 January 2010 and 3 January 2011 that related to supplies made before then. VAT at a rate of 15 per cent was due on these payments.

Annual Accounting Scheme

Your instalments would not have been affected by this change in the standard VAT rate.

Flat Rate Scheme

The flat rate percentages were re-calculated to reflect a standard rate of VAT of 17.5%. Some amendments were also necessary to ensure that the rates accurately reflected the VAT paid by businesses in each sector. These rates applied from 1 January 2010 until 3 January 2011 inclusive.

Read more about the flat rates

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What VAT you could reclaim

You could claim back the VAT you were charged by your supplier in the normal way. You would still have been receiving invoices after 1 January 2010 showing 15 per cent VAT relating to purchases you made before the rate change. In these cases you should have claimed back VAT at 15 per cent.

Find out more about what VAT you can reclaim (PDF 248K)

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How to have completed your VAT return

You should have continued to receive and submit VAT returns in the normal way - monthly, quarterly or annually. The deadlines for submitting your VAT returns and making payments were unchanged. For return periods that covered both before and after 1 January 2010, you needed 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 how to have completed your VAT return and the change in VAT rate (PDF 248K)

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How to have corrected an error on your VAT return

If you discovered that you made an error you could have corrected 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 made mistakes accounting for the change of rate on your first VAT Return after the change, HMRC will only seek an adjustment if there was likely to be an overall revenue loss.

Read more about the measures to help business

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