Retailers and cash businesses
If you are a retail business, making mainly cash sales to customers not registered for VAT, the new 20% rate applies to all takings that you receive on or after 4 January 2011. But this doesn’t apply to sales before 4 January. In this case, the sale will take place before 4 January, so use the old rate of 17.5%.
An easy way to find out how much VAT is due under the new rate is to divide by five. For example, if your takings are £18,527 in the quarter, then the VAT due is £18,527 divided by five, which equals £3,705.40
You should use the 20% rate for all VAT invoices issued on or after 4 January 2011 and which are issued within 14 days of you providing the goods or services (or any longer period agreed with the VAT man). There are optional changes of rate rules where you provide goods or perform services before 4 January 2011 and raise a VAT invoice and, in some cases, receive a payment after the rate change. For example, if you issue a VAT invoice on or after 4 January 2011, for goods or services that you provided before 4 January 2011, you can apply 17.5%. This is only necessary where your customer could not recover all the VAT that they were charged (unregistered or partly exempt). Otherwise, they could just claim back the higher amount.
Flat Rate Scheme
From 4 January 2011 new Flat Rate Scheme percentages will apply.
Any credit notes issued should be at the rate of VAT in force at the time the original invoice was issued for example, you supplied goods on 16 December 2010 and half of them were returned in January. You issue a credit note in February, but the VAT will be 17.5% the rate in force when the original invoice was issued.