The UK's standard rate of VAT increased from 17.5 per cent to 20 per cent last month. For any sales of standard-rated goods or services made on or after 4 January 2011 VAT at the new 20 per cent rate must be charged. A new bank levy was also introduced from 1 January 2011 based on banks’ balance sheets at a proposed rate of 0.07%, though the rate starts initially at 0.04%. At the timing of going to press, the Chancellor has announced that the rate will be 0.1% for 2 months from 1 March 2011, falling to 0.075 thereafter.

VAT Rate Increase

The change only applies to the standard VAT rate. There are no changes to sales that are zero-rated or reduced-rated for VAT. Similarly, there are no changes to the VAT exemptions. Any sales made at these rates are unaffected.

HMRC has issued a guide which sets out how to account for the change to the standard rate of VAT, the special rules for sales which span the change of rate, and some further information. The guide is available at http://www.hmrc.gov.uk/vat/forms-rates/rates/rate-increase.htm

Bank Levy

According to guidance on the HMRC website, the levy is intended to encourage banks to move to less risky funding profiles and is expected to raise over £2bn annually from 2012.

HMRC recently published draft guidance on the Bank Levy which is to accompany the publication of Finance Bill 2011. The draft ‘Bank Levy Manual’ can be accessed here. http://www.hmrc.gov.uk/budget-updates/autumn-tax/bank-levy-manual.htm