The standard rate of VAT will increase from 17.5% to 20% with effect from 4 January 2011. The way in which this will affect your business will depend on whether you are a cash or invoice business.
If you have a cash business, the new rate of 20% will apply to the takings you receive on or after 4 January 2011 and you should ensure that your pricing and any electronic till systems are updated to cope with this. For any sales made prior to that date, the current rate of 17.5% will continue to apply.
If you are raising invoices, the new rate should be shown on all invoices raised on or after 4 January 2011 providing that they are being raised within 14 days of the goods or services being provided. On the other hand, if you raise an invoice after the new rate has been introduced which relates to goods or services that were provided before 4 January 2011, you can apply the current rate of 17.5%. This would probably only be necessary where you are supplying a non-VAT registered customer though, as a VAT registered business could just reclaim the higher amount on their next VAT return.
It is important to remember that if you raise a credit note on or after 4 January next year, you must apply the VAT rate that was in force at the time when the original invoice was issued.