The reduced rate of VAT that applies to certain building work remains at 5% following the rise of the standard rate of VAT to 20% this month (January). Work that was previously zero-rated also remains zero-rated.

The 5% rate applies to conversion work creating accommodation, alterations and renovations to empty properties and the installation of certain energy saving and mobility systems.

Sales of new houses or newly converted property are zero rated, as are approved alterations (but not repairs) to listed properties and scheduled monuments.

While some contractors seem to consider cash business to be zero-rated, the VAT fraction you should use on your standard-rated VAT sales is now 1/6.

The increase in VAT to 20% is a 14.2% rise. That will add 2.1% to the price of any standard-rated product that you buy. Anything above that is not a result of the tax increase.

If a business receives a purchase invoice dated on or after

4 January that shows the VAT at 17.5%, only the actual amount shown can be reclaimed.

If you use the Cash Accounting Scheme, you will need to be able to identify payments received on or after 4 January this year that relate to supplies made before that date. VAT at a rate of 17.5% will be due on these payments.

If you use the Annual Accounting Scheme, your installments will not be affected by the change that has been made to the standard VAT rate.

Flat Rate Scheme percentages have been re-calculated to reflect the new standard rate of VAT.

The new rates are permanent and apply until further notice.

You can choose to operate the Flat Rate Scheme if your VAT exclusive turnover does not exceed £150,000. As this turnover figure is VAT exclusive, it is not affected by the change in the standard rate of VAT.

You must leave the Flat Rate Scheme if your income (including VAT) exceeds £230,000. However, if your income exceeds this threshold because of a one off transaction and you expect your income to fall below £191,500 in the following year, you can ask HM Revenue & Customs to be allowed to remain in the Flat Rate Scheme. Your request must be made in writing.

There is a lot of information about the VAT change on the Revenue & Customs website at the address below.