The VAT rise: Explained

10:51 20 December 2010

2011 is set to be the year that many changes are made to the country. Cuts have already been announced - a pre-empt to thousands of job losses – and a VAT rise is sure to have us reaching even deeper into our pockets. But how are the changes going to affect you?

The facts

The new VAT will come into effect on 4th January 2011. It will now be set at 20%.

A VAT rise of 2.5% doesn’t seem like much, but when you think what is attached to VAT – prices of goods and bills – you will soon realise that it all adds up.

More expensive items will be affected the most, whilst for smaller products it will be barely noticeable. For example, the new VAT added to something which currently costs £10 would equal £10.21, whereas a new car worth £20,000 would add an extra £425.

It has been argued that the poorest will end up paying more, with more benefit cuts expected to be announced at some point in 2011.

It is expected to save the country around £13billion.

Businesses

The most concerned about the rise in VAT rates are businesses who are already struggling. Not only will they have to pay extra for their supply materials, but they will in turn have to put customer prices up also; something that they may ill afford.

Many experts have said that trading will be even harder, especially with abroad, whilst the Government also plans to increase insurance premium tax from 5% to 6%.

With such items rising, it could lead to further job losses and again into another recession.

What can we do?

There isnÂ’t much that we can do, however, saving money is the key to reducing the amount that we have to pay.

By buying second-hand items, you donÂ’t have to pay VAT and therefore avoid paying that extra bit of money.

It’s also advised to shop around before buying anything – food, housing products, new cars – so that you get the best deal possible.

Most importantly, make sure that your bills are kept to as low as possible. Electricity and gas looks set to rise in price too next year.

2011 will be a hard year for all, but itÂ’s all about trying to find the best way to save money that will get us through.