VAT Change of standard rate

Legislation will be introduced to increase the standard rate of VAT from 17.5% to 20%. The new rate will have effect for any supply made on or after 4 January 2011. Zero rated and exempt supplies are unaffected by the change.

Anti-forestalling legislation will be introduced to counter arrangements that purport to apply the 17.5% VAT rate to goods or services to be delivered or performed on or after 4 January 2011. In certain circumstances there will be a supplementary charge to VAT of 2.5% where 17.5% VAT has been declared.

Forestalling will occur when arrangements are put in place for a VAT invoice to be issued by a supplier, or payment to be received by a supplier, before 4 January 2011, where the supply is not due to be made until or after 4 January 2011.

The anti-forestalling legislation will apply in certain specified circumstances where the supplier and customer are connected parties. There will be similar measures to prevent the use of the grant of standard-rated rights or options as an avoidance mechanism.

The supplemental charge will not apply to prepaid or invoiced rentals of land, buildings or other assets if the period concerned is a year or less, and the prepayment, or the issuing, of an advance invoice is normal commercial practice.