From January 4 2011, the standard rate of VAT will increase from 17.5% to 20%. In simple practical speak that means with every invoice you should add 20% to the value of your service or product.

To be specific, the 20% rule applies on invoices you issue on January 4 and thereafter. If you provided a service or sold goods before January 4 but are sending the invoice after the VAT rate change then you have a choice. You can either decide to add the VAT at 17.5% or use the new rate. Whatever’s best for you.

If the situation happens to be the exact opposite, i.e. you’re being paid or sending invoices before January 4 for work that is being done afterwards, then VAT will usually remain at 17.5%.

The HMRC states that if you offer a continuous supply of services, such as leasing photocopiers, you should… “account for the VAT due whenever you issue a VAT invoice or receive payment, whichever is the earlier.” So, you must charge 20% on invoices you issue and payments received on or after January 4.