plugin will not offer update even though a new version is available

Changing the version number in your readme does not update the version with wordpress.org as an update. The plugins page is looking at this and not the tags in the repo. Take a look at ‘tagging a new version’ here: http://wordpress.org/plugins/about/svn/ – tag your new version and then give it some time. This will notify users of the update the next time their install checks for updates.