Stockpile before VAT rises in January - better than saving?

Primrose

I wonder if anybody has sat down & worked out how much VAT a year the average person pays on household expenditure and how much they would save if, as opposed to putting money in a savings account, they spent it buying in a year's supply of VATable items at the reduced 15% rate, or bringing forward their expenditure on VAT rated services such as car servicing, mower servicing, household maintenance items/equipment etc.
When you consider that apart from some food items which are still VAT free, virtually all our expenditures are VATable, I reckon stocking up could work out a more profitable option than putting the money in a savings account.

CLAPTON

interesting idea

however

it would all depend upon the detail

to bring forward say a car service by 6 months just to 'save' a bit of VAT would be a false saving as you would still need the subsequent service 12month after the brought forward one so over the live of the car you may well spend more not less.

how much is subject to VAT depends upon your circumstances
so food, public transport, council tax, are VAT free, gas and electricity pay at 5% and weren't affected by the decrease, can't remember about water charges

whether its worth bringing forward buying 'objects' depends upon what you expect to happen to prices generally.

and of course you're assuming people have the money to bring forward their spending... clearly be madness if they had to borrow to do so.

Poosmate

Nice idea but I think you'd have to buy an awful lot of taxable items in order to make a real financial difference and then there's the problem of storing all the gear.

I'm assuming that VAT will increase back to it's original 17.5% (I hope it's no more anyway) so VATwise you'd be saving 2.5p/£, not a great saving but a saving nonetheless. However, factor in the oil price rises raising petrol prices, the cost of all goods will soon increase too anyway.

I have started to stockpile on non perishable goods for that very reason. I don't think it's a bad idea to always have some "stock" in anyway just in case some unexpected bill comes in so you can minimise your shopping bill for a month and live out of your cupboard.

Nice thread.

Poo

JasonLVC

Lets assume the avergae household spends £20,000 per year. This is made up of :-
£5,200 (£100 per week food bill),
£5,000 (petrol, equivalent of 2x cars doing 20k a year each)
£1,800 (gas/eletric/water for average house for a year)
£8,000 (everything else - TV's, Sky subs, one holiday, etc)
=£20,000 in total

If we assume that £20k includes VAT at 15% then the VAT fraction of 3/23 (15%) equates to £20,000 x 3 / 23 = £2,608.70 VAT

If we assume that the the same £20k includes VAT but at 17.5% then the VAT fraction of 7/47 (17.5%) equates to £2,978.72 VAT

The difference between the old and new VAT rates is therefore £2,608.70 less £2,978.72 = £370.02 :eek:

The major outgoing for households will be mortgages - which do not have VAT on anyway so the 'average' person spending the same £20k this year and next year will see a saving of just £370 IF they stockpile goods now.

The above does not factor in anything else, just pure VAT. Of course, if prices rise, fuel goes up, food goes up, etc then the differences will grow slightly more. You are probably better off holding onto your cash now, keep it in the bank earning 4%.

The alternative view is that £370 equates to £7 per week saving if you DID stockpile foodstuffs, etc. The problem is the bigger costs such as fuel are difficult to buy in advance so of that £370 annual saving probably only half of that you could buy in advance (food), with petrol and leccy bills being charged as and when they are due so if we halve the £370 we get a grand saving of £185.00

Primrose

Jason - thanks for those interesting calculations, which are worked out on VAT rising back to 17.5% rather than going up to a higher rate of 20% (which if the economy and national debt is in as dire a state as has been suggested recently, might be a distinct possibility) in which case the savings could be much higher than £370 a year. I agree that some incidents of 'bringing forward' expenditure are not practical and of course storage is an issue too, but it does show that for those who have the financial flexibility, some forward financial planning can save money.

00ec25

JasonLVC wrote: »

Lets assume the avergae household spends £20,000 per year. This is made up of :-
£5,200 (£100 per week food bill),
£5,000 (petrol, equivalent of 2x cars doing 20k a year each)
£1,800 (gas/eletric/water for average house for a year)
£8,000 (everything else - TV's, Sky subs, one holiday, etc)
=£20,000 in total

If we assume that £20k includes VAT at 15% then the VAT fraction of 3/23 (15%) equates to £20,000 x 3 / 23 = £2,608.70 VAT

not quite
on average there is no VAT on nearly all food
legally you cannot store more than 5? or 10? litres of fuel on your property
utility VAT rate wil remain at 5% so is unaffected

so your £20k annual spend subject to VAT is actually only £8K and your savings in your example would be £148.01

add into the equation the fact you have spent the money early and therefore are no longer earning savings interest, the exercise becomes an interesting academic one but will not really produce any meaningful savings from your £20K household's expenditure

TM1976

There is probably some other stuff here that isn't effected too, for instance your holiday if you go abroad will not be subject to VAT. Interesting post as it shows despite this being a 30billion cost give away most people it doesn't mean that much.

The best thing is probably to bring forward any big ticket purchases like a new car, furniture, computer TV etc.

When the VAT cut was introduced the duty rate on petrol was increased to stop any benefit from this, what's the betting that when VAT goes back up again duty stays at the same rate leaving us paying more tax on petrol than we were 18 months ago.

JasonLVC

You have to accept my post was a very generalist approach to the interesting question posed.

I was thinking more along the lines of an average weekly shop so I should have said "weekly shop" instead of food bill (accepting that not all food is zero rated) - so thanks for the clarification.

You're quite right about the leccy bills - of course they are 5% (:o d'oh!) so no affect at all either.

So really, it comes down to big ticket items like cars (and if you qualify, the £2k you get under scrappage will likely cover the VAT charged on the car provided you don't go for a Bentley!).

As TM quite rightly notes, the whole VAT cut and subsequent VAT increase really isn't that good a deal for most, it hasn't helped the poor and stockpiling now would save someone a matter of a few hundred quid - which really makes you wonder what all the fuss was about in the first place.

Still, roll on the VAT increase which is bound to be announced in the next Budget......

John_Pierpoint

Some of us can remember when VAT was zero or did not exist.
Some of us can remember when it was 8%
Some of us can remember when inflation was between 10 & 20% and 8% was a miserable return on savings.
I do remember buying three years supply of coal, and before I had burn it all the VAT rate of nil had gone up to 8% (?) and back down to 5%.
Can I remember a time when there was no VAT on home improvements? I do remember paying in advance for a fitted bedroom to avoid the VAT but having to pay some interest to the credit card company in case the supplier went bust before it was fitted.
We are now back in a country of a "bankrupt" government so expect lots of tax "adjustments" - but it beats me to think of what there is still left to tax by stealth or otherwise.