As everyone should know by now UK VAT increased to 20% from 04/01/2011 onwards. Having received an invoice (tax) dated 01/01/2011 at 20% which is before the increase I immediately thought to myself “This invoice cannot be correct?”.

The supplier in question has stated this is in line with what they have been advised by HMRC.

Having done a little digging around on the HMRC website my understanding of the tax increase is as follows:

• In the case of services invoiced with a point before 04/01/2011 then the supplier may choose to either:
  • Invoice at 17.5% VAT for the period of services before 04/01/2011 and 20% for the remainder

  - OR -

  • Invoice entirely at 17.5% if this works out easier for the supplier.

• Otherwise for invoices of tax point 04/01/2011 and later charge 20% VAT.

Having had a closer look at the invoice with the supplier, the invoice dated 01/01/2011 is for services in February so I believe it is correct. However, the previous invoice with tax date 01/12/2010 invoices for services in January at 20%.

Now, I am aware there are some special circumstances where the suppler can(or must) bend the rules but having read through the guidance none of these seem to apply so surely the supplier is wrong? Or is my interpretation of the guidelines wrong?

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About a week or two later other sources have blogged about the same issue and their understanding is in line with mine.

It was time to take the issue to HMRC. Having described the invoices to a HMRC support representative she confirmed our supplier can charge at 20% if they wish to. Ok, so fair enough our supplier may have been advised they can invoice at 20%. However, what I was advised still does not seem to tally up with the guidance HMRC provide!

So I ask YOU, THE INTERNET, what is correct?!