Beat the January VAT price hikes

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VAT rises from 15% to 17.5% in New Year
Act now to beat the price hikes
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.
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£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.
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.
current savings: 20,500 (target hit yippee!)
Debts: 8000 (student loan so doesnt count)
new target savings by Feb 2010: 30,000
Although not food, but something that we all buy from the supermarket, is toilet paper. Cheap stuff - No VAT, Quilted - Add the VAT!
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%.
Last year, MSE Martin was quoted as saying:
http://www.timesonline.co.uk/tol/money/tax/article5780752.ece
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.
http://www.audioscribbler.co.uk/news/5893
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!)