Most business owners will now be aware that the standard rate of VAT increases to 20% from 4 January 2011, but where invoices are raised or payments are received around that date, it is the “tax point” which is important. This is the point when the supply of goods or services actually takes place, but the tax point is brought forward if an invoice is issued or payment is received before this date, or it is later if the invoice is issued within 14 days of the basic tax point.

Where a supply has its basic tax point before 4 January 2011 but the invoice is raised on or after that date (but within 14 days of the supply), the rate applicable will be 20%. In this situation the supplier can choose to apply the VAT rate at the basic tax point, 17.5%. If a supply spans 4 January 2011, a business will be allowed to either charge VAT at the higher rate of 20% if the invoice is raised after 4 January, or if the supplier chooses, they can apportion the charge between the work done before 4 January and work done on or after that date and charge 17.5% and 20% respectively.

There are, however, strict anti-forestalling rules which impose a supplementary 2.5% VAT charge on the supplier where invoices are issued, or payments are received before 4 January 2011 for supplies made on or after that date and subject to certain other conditions being met.