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Find out more about VAT

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Price increases

Businesses will decide whether to pass the VAT rate increase on to customers in full or whether to absorb some or all of that increase themselves.

If they absorb all the increase, the price at the till will stay the same and you won’t notice any difference.

Retail sales

If you pay a retailer in full for something that you either take away or have delivered on or after 4 January, the new 20 per cent rate will apply.

But if you pay a retailer in full on or after 4 January for something you have already taken or already had delivered before that date, the old 17.5 per cent rate will apply.

Retailers have to show prices that include VAT. However, following a VAT rate change retailers have up to 28 days to adjust their prices. So, from 4 January 2011 to 1 February 2011, retailers can put up a notice to let customers know that an adjustment will be made at the till to account for the VAT rate change.

Services

If you’re being supplied with a service that started before 4 January but is still in progress on that date, the business providing that service can choose to charge the old 17.5 per cent rate on work actually carried out up to 3 January, and the new rate of 20 per cent for the remainder of the work.

If you’ve received a service that was completed before 4 January, but you get a VAT invoice or pay on or after that date, the business providing the service can choose whether to charge VAT at 17.5 per cent or 20 per cent. You can’t force a business to charge the 17.5 per cent rate in such cases.

Charging the correct amount of VAT

Businesses have to charge the correct rate of VAT at all times. They won't be able to charge the 17.5 per cent rate when the 20 per cent rate should have been charged.

More on Directgov

• VAT (money, tax and benefits section)