VAT (Value Added Tax) has stood at 17.5% in the UK on many consumer goods and services, with “zero rate” and “reduced rate” applied to items that do not fall under the full rate for many years now. However, in January 2011, VAT will increase to 20% in the UK in an attempt by the British government to help cut the deficit. What steps can you take to beat the VAT hike in 2011?
Affected Consumer Goods and Services
One way to heat the VAT hike is to become a savvy shopper by doing your homework before heading off to the shops or paying for services. Affected consumer goods and services will include the price of petrol, cars and car parts, insurance premiums, utility bills such as gas and electricity and alcohol.
Do Your Homework
However, most “essential items” such as food, books, newspapers, and children’s clothes will continue to be VAT-exempt, so there will be no noticeable hike in prices when buying these consumer items and goods. Go to the VAT classifications on the HMRC website where you will find a full list of goods and products that come under each of the three VAT categories of taxation.
The VAT rates include “zero rate”, “reduced rate” (5%) and the full rate. Food rates vary. For example, so-called “luxury” food items such as crisps and biscuits incur the full VAT rate, whereas milkshakes, Jaffa Cakes and tortilla chips are classified at the zero rate and therefore do not incur VAT. Feminine hygiene products such as sanitary towels come under the reduced rate VAT classification, while medical essentials do not incur VAT.
If you are planning to make a major purchase over the next year, it is a good idea to do so before 2011 so that you are not charged at the full 20% rate when VAT increases. Bring forward major purchases such as a new car, a kitchen makeover, a holiday and other purchases on your wish list. In order to avoid the hike in VAT, you will need to pay for major purchases before VAT increases, so keep receipts for major purchases made now, even on items you are paying for in instalments or have paid a deposit for.
The increase in VAT will affect consumers, as they have to dig deeper to pay for certain consumer goods and services. However, it is possible to beat the VAT hike by finding out more about affected goods and services, doing your homework and buying major purchases before prices go up in 2011.
HM Revenue & Customs. Rates of VAT on different goods and services.