VAT Cut – What it means for you!
On December 1st the government decided to help consumer spending by cutting the rate of standard VAT from 17.5% to 15%, this is the lowest allowed rate of VAT permitted by the European Union and will remain at this low until the midnight 31st December 2009.
What is VAT
VAT (Value Added Tax) is a tax you pay when you buy goods and services within the EU; normally included in the price of the item/service unlike the United States where it is added on at the checkout. There are 3 different VAT rates.
Zero rate (0%), goods you don’t pay VAT on such as food, books, public transport, children’s clothes and shoes, and special exempt items i.e. Equipment for the disabled.
Reduced rate (5%), goods include domestic fuel and energy, children’s car seats, services such as installing energy saving devices and domestic conversions.
Standard rate (now 15%); is the default rate of goods and services that are not mentioned above.
So what does the rate cut mean for you and can you take advantage of the situation?
The first question to ask is whether the shops will pass on the rate cut to me, and it seems that many high street stores have. The prices on their items may be the same but when you go to the till you will find you’re getting a 2.5% discount off the marked price. Couple this with huge Christmas discounts available during the holiday season and it can add up to a nice saving.
If you have been planning to buy a new TV, some high end electrical equipment or a car now would be a great time to buy as you make a saving of £25 on every £1000 from the VAT reduction alone and throw in the Christmas discounts can help you save lots of money. Outside of the Christmas period or a sale season the reduction won’t be as noticeable and stores may slyly decide to not pass on the saving on anymore in a bid to increase their dismal credit crunch profits.
Don’t go crazy
Just because prices have dropped by 2.5% does not mean that you should go crazy and have a massive spending spree, flashing plastic willy nilly in December can give you one hell of a debt hangover in January so spend wisely and only splash out if you can honestly afford it.
