VAT rises to 20%

29 December 2010

Try our new VAT calculator to find out how much you will pay after the VAT rise on 4 January.


The standard VAT rate rises today from 17.5 per cent to 20 per cent. As a result this year's post Christmas sales have been some of the most anticipated yet with London shops seeing 11.4% more visitors according to the British Retail Consortium.

So what do consumers need to know about VAT? Read our guide below.

What is VAT?

Value added tax is paid on goods and services from a VAT-registered business in the European Union (EU). Each European country charges its own VAT rates and the UK's are as follows:

Standard rate: 17.5% changing to 20% 4 January 2011. Charged on most goods and services

Reduced rate: 5%. Payable on goods such as children's car seats and gas and electricity for your home. The reduced rate sometimes only applies in certain circumstances so it's worth checking the detailed rules with HMRC.

Zero rate: Most food items, books, newspapers and magazines, children's clothing and equipment for people with diasbilities. Again the zero rate is applied differently in specific instances.

Should advertised prices always include VAT?

Retail shops are legally obliged to include VAT within the price displayed so that consumers have an idea of the true final price. Products and services that are advertised in outlets, magazines and catalogues, online or on price lists must also include VAT within the final advertised price if selling to the general public.

However, a retailer may also be advertising their goods for business purposes, in which case it isn't a legal requirement to display the VAT as part of the final price.

How should VAT be displayed on bills and receipts? 

In general, most retail bills and recepts will not display VAT separately and if they do, it's just for display purposes and doesn't mean the customer has paid that on top of the final bill.

Invoices from VAT-registered suppliers, such as builders, painters and decorators, have to show a separate amount for VAT as well as the business' nine-digit VAT registration number.

Bear in mind that not all businesses have to register for and therefore charge VAT. For more help on this and general guidance on VAT matters contact the VAT helpline on 0845 010 9000. Lines are open weekdays 8am to 8pm.

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