Beat the January VAT price hikes

Former_MSE_Guy Posts: 1,650 Forumite
I've been Money Tipped! Newshound! Chutzpah Haggler
edited 9 December 2009 at 11:59AM in Shop but don't drop
VAT rises from 15% to 17.5% in New Year
Act now to beat the price hikes

Value Added Tax (VAT) goes back up to 17.5% on 1 Jan, meaning prices across the UK will rise. A £10 DVD will cost £10.22 (or more if companies round up) and a £5,000 kitchen would cost £110 more. Here's a quick VAT rise beating Q&A...

Q. By how much will prices rise? It isn't as simple as adding 2.5% to the price. To find the increase multiply the price by 0.022, that's just over 2p per pound.

Q. Does VAT apply to everything? No, you don't pay it on a few items like food, books, kid's clothes & overseas travel/accommodation (but you may pay overseas tax).

Q. Is it when you pay or receive goods that counts? The VAT rate's usually determined when you pay or a tax invoice is raised. So pay now but receive goods in 2010, and 15% is charged. Yet there are complications. You could pay the higher rate if a VAT receipt's raised now but you take over 6mths to pay; or you try to pay now to beat the deadline when there's no chance of it delivered for an age.

Q. What if you pay deposit now and the rest in 2010? The deposit is charged at 15%, the rest of the balance depends on when the VAT invoice is raised and your purchase arrives. So if it's a big purchase ask them to raise it before 2009 ends.

Q. Won't items be cheaper in January's sales anyway? It's likely sales reductions will more than compensate for the VAT rise, yet as some start on Boxing Day, you could get the best of both worlds at the end of this month.

Q. Will all firms pass on rises? That's up to them; for instance, John Lewis says it's likely to hold off increasing prices until February.

Q. What if the shop mistakenly charges too little VAT? The tax is for it, not you, to pay. So it cannot ask for extra cash if you've already paid or signed a contract.


This story has also been published on the MSE News pages.
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  • Most shops only lowered prices, ie discounted by 2.13% for a couple of weeks, and then increased them again so they could profit themselves. So I hope they don't have the cheek to increase prices in January!!
  • VAT is due to rise on petrol and diesel too. But didn't Brown and his band of thieves put another tax on fuel so we wouldn't pay any less? Just watch them forget to remove that extra tax and put VAT on top of it so that we get a double whammy on Jan 1st!
  • JasonLVC
    JasonLVC Posts: 16,762 Forumite
    First Anniversary Combo Breaker
    edited 9 December 2009 at 9:50AM
    Lets assume the average 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 UK 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

    Most food is zero rated so that £5,200 food bill, I'm assuming there's VAT on, when in reality that is not the case....but let's assume the food bill consists entirely of chocolate and beer!.

    The utility bills are charged at 5% VAT and so didn't change then or from January. So that £370.02 saving could be halved to account for food and utilities down to £185.

    The major outgoing for households will be rent/mortgage - which are VAT exempt, so the 'average' person spending £20k this year as next year will see a saving of just £185 (approximate).

    It is STILL a saving of course and this is a Money Saving website :money: - but just don't panic buy, thinking you're making a saving, in the grander scheme of things, it'll make very little difference.
    Anger ruins joy, it steals the goodness of my mind. Forces me to say terrible things. Overcoming anger brings peace of mind, a mind without regret. If I overcome anger, I will be delightful and loved by everyone.
  • moneypooh
    moneypooh Posts: 2,217 Forumite
    First Anniversary Combo Breaker
    edited 9 December 2009 at 10:25AM
    I do find it ironic that last year the media and some members on this site said the VAT decrease was meagre and didn't have much effect, but now it's going the other way it's a price hike. Bizarre, I don't remember everyone getting excited about it reducing, but annoyed now that it's going back to normal.
    I do think retailers will use it as an excuse to put their prices up as we are all expecting increases.

    Surely it's not a hike up, it's getting us back to where we a year ago. I'm just glad they didn't decide to increase it beyond the 17.5% to get back the reduction.
  • Dave101t
    Dave101t Posts: 4,157 Forumite
    2p in the pound, why its the single greatest tax hike in the history of the planet! or the smallest...
    Target Savings by end 2009: 20,000
    current savings: 20,500 (target hit yippee!)
    Debts: 8000 (student loan so doesnt count)

    new target savings by Feb 2010: 30,000
  • I engaged a reputable immigration solicitor to help my daughter-in-law get a visa to enter the UK as a spouse (not a straightforward case at all) and throughout the case he assured me VAT was not payable because of her circumstances, and I did not inquire why not. Now that she has her visa and is safely back in the UK (2 weeks ago), he suddenly informs me he had not realised that because she had never been an ILLEGAL immigrant, she is liable to VAT after all. Only ILLEGALS and people who have never been in the UK are excused VAT, he now tells me. I am disappointed in him because his first advice to her was to return to her home country immediately in order to avoid becoming an illegal immigrant. Throughout the two years we have been working on this case, she has never been an illegal immigrant, yet he has written two or more times that no VAT is payable on the fees I have paid on her behalf. Now I am abruptly faced with paying VAT at 15% on several thousand pounds, with the possibility that if his firm is slow with their invoice, I could be paying it in January at 17.5% What I am asking is: as I have already paid all the fees liable over the last 2 years, what is the likelihood of being charged 17.5% of the earliest lot (before VAT went down) and 17.5% of all the rest because the invoice doesn't arrive before the new year? I am tempted to calculate the maximum and simply send it to them immediately, expecting them to return any overpayment, but the firm has specifically asked me to wait for the invoice. An extra complication is that they have paid all my fees into a holding account until closing the case, and are calculating any interest to be paid back to me. How does this affect the date of my paying them, and the level of VAT payable at that time? A final factor is a possible veiled hint in an email that the whole question of VAT might be looked into veiled it took a friend to point it out. I don't suppose anyone can give advice in such a confused situation, but I did think it relevant to the current efforts to get bills paid before VAT rises again. It means several hundred extra pounds to me, and having used my savings to help my son and his wife, I will not find it easy to pay. (How do I get separate paragraphs here??? I have repeatedly formed paragraphs only to see them scrambled together in this difficult-to-read format....)
  • The header of this topic is not strictly correct. To say that you do not pay VAT on food is not true. You do not pay VAT on some food, but the food classified as 'luxury' items is subject to VAT. 'Luxury' food can be as simple as chocolate biscuits, and it is the chocolate element that changes the classification.......!

    Although not food, but something that we all buy from the supermarket, is toilet paper. Cheap stuff - No VAT, Quilted - Add the VAT!
  • Say you've got builders doing a job for you, where the contract price is already agreed. If some installments are paid this year and a few of them next year (as the job is probably due to be finished early next year), does the VAT rate stay at 15% for any remaining installments paid in 2010 (if there are any then)?
  • I find some of the points you have raised are a little misleading compared to the Governments rulings on the vat change. Particularly the 3rd and 4th points about when goods are received and deposits.

    I work for a company that provides services rather than products and we have been clearly told that the vat rate is applicable at the time the service is provided. If a customer wishes to pay in advance during 2009 then the additional vat amount must be invoiced in 2010. Likewise, if a customer pays a deposit during 2010 for a service they receive in 2010, the deposit is an amount taken off the final invoice (raised in 2010 at time of service) and therefore the rate of 17.5% vat applies to the whole amount.

    Basically, you will only save on the vat increase if you purchase goods during 2009 before the change. Paying in advance for services you will receive in 2010 will not bring any benefit as the final amount will have to be invoiced at 17.5%.
  • Premier_2
    Premier_2 Posts: 15,141 Forumite
    Combo Breaker First Post
    MSE_Guy wrote: »
    ...Value Added Tax (VAT) goes back up to 17.5% on 1 Jan, meaning prices across the UK will rise. A £10 DVD will cost £10.22 (or more if companies round up)...

    Last year, MSE Martin was quoted as saying:
    "Customers are unhappy because they are not getting the discount and shops are unhappy because they’ve had to go through all the bureaucratic hassle of changing their pricing for such a small reduction,” said Martin Lewis, founder of the Moneysavingexpert website.

    Surely it's just as much hassle to increase prices as decrease them for such a small amount? Time will tell!

    Also HMV promised to pass on the VAT saving in full, even if it's price labels in store didn't reflect that.

    So hopefully that £10 DVD will still only cost £10 in the new year (although you could buy it for £9.79 currently if they are still good to their word!)
    "Now to trolling as a concept. .... Personally, I've always found it a little sad that people choose to spend such a large proportion of their lives in this way but they do, and we have to deal with it." - MSE Forum Manager 6th July 2010
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