Value Added Tax

From 4 Jan 2011 1 Jan 2010
Standard rate 20% 17.5%
VAT fraction 1/6 7/47
Reduced Rate 5% 5%
Taxable Turnover Limits
Registration - last 12 months or next 30 days over £70,000 from 1 April 2010
Deregistration - next 12 months under £68,000 from 1 April 2010
Annual accounting scheme £1,350,000
Cash accounting scheme £1,350,000
Flat-rate scheme £150,000

Change to the standard rate of VAT

The standard rate of VAT will increase to 20% on 4 January 2011.

Zero rated supplies, such as basic foodstuffs, children's clothing and books; exempt supplies, such as education and health; and supplies subject to VAT at the reduced 5% rate, such as domestic fuel and power, are not affected by this change.

There are no changes to the Cash Accounting or Annual Accounting Schemes.

Anti-forestalling legislation will be included in the Finance Bill 2010 to prevent the 17.5% rate applying to supplies of goods or services that are provided on or after 4 January 2011, subject to certain conditions.

VAT flat rate scheme

As a consequence of the increase of the standard rate of VAT from 17.5% to 20%, the flat rate scheme sector flat rates have also been recalculated to reflect the increase.

The VAT flat rate scheme was introduced in 2002 with the objective of simplifying VAT for businesses with an annual turnover up to £150,000, tax exclusive. That threshold remains unchanged.

Lennartz accounting

Under existing arrangements, VAT on immovable property, boats and aircraft is recoverable upfront and in full on both the business and private use of the asset (subject to any partial exemption restriction). VAT is then payable over subsequent years in respect of the private use of the asset. This is known as 'Lennartz' accounting. The changes introduced in this Budget will ensure that VAT recovery is restricted only to the business use of the asset, excluding any private use by the taxpayer or the taxpayer's staff. Changes to the capital goods scheme will also be introduced so that it will take account of changes in private use over subsequent years. The changes will have effect on and after 1 January 2011.

We work with

subscribe to our newsletter