Just a quick reminder: VAT rates go back to 17.5% today. If you’re confused, here’s a short explanation about VAT from John Crawford, Managing Director of www.thevatconsultancy.com:
VAT is a tax that’s charged on most goods and services that the majority of businesses provide in the UK. In broad terms, VAT is charged when businesses sell goods and services between each other, and also when they sell these to consumers. During 2009, the standard rate of VAT was 15%, and so 15% of the cost of most items you bought went back to the Government as tax.
If the rate was originally 17.5%, why did it go down, and why is it now going back up?
The rate went down at the end of 2008 to 15% to help stimulate the economy and encourage consumers to continue to make purchases. It was the lowest possible rate allowed by EU law but promised to only be a temporary measure to help consumers through a difficult period. Alastair Darling announced earlier in December that the rate will return to 17.5% to bring back more money into the Government to pay for the services which we use.
When is this rise going to take place?
The VAT rate will change from midnight on 1st January 2010 to 17.5%, and therefore many items and services that you buy will, in theory, become 2.5% more expensive overnight.
Why won’t items like train tickets get more expensive?
There are certain items, regarded as ‘essential supplies’ by law for which VAT is not charged, such as food (but not meals in restaurants or takeaways), newspapers and stamps as well as train, bus and air travel.
I’ve got a bill that says the VAT rate is 5%. Is this going to go up by 2.5% as well?
Certain goods, such as domestic fuel and power, energy saving materials, sanitary hygiene products, and children’s car seats, have been classified by the Government as ‘reduced-rate’ items. The reduced-rate will stay at 5% in January 2010.
Is the VAT rate likely to change again?
The VAT rate is set by central Government, and the only other recent time it has been changed was in 1991. The VAT Consultancy predicts that we will see another rise by the end of 2010, probably to 20% but there has been no mention of this from Government as yet.