How much will the new rate of VAT cost me?

As you will have seen on the news, the rate of VAT in the UK is to change from 17.5% to 20%.

VAT is an amount added by the supplier of most goods and services to what they sell, and which they must by law pay to the government. As individuals are usually not VAT registered, what we buy includes VAT, and is not reclaimable as it is to most businesses.

Offers by shops to cover the rise in VAT mean that they keep the sale price the same, but reduce the amount they get to keep after deducting the VAT they owe to the government. For example, if you buy a sofa before the increase for £500.00, the VAT due by the seller is £74.47; after the increase, the seller has to pay £83.33 to the government, meaning they are £8.87 worse off.

To most of us, the increase will mean very little, as the impact of adding 2.5% to the cost of a purchase is pretty small. For example, assuming no other changes to its price, an item costing £100.00 in the shop will be re-priced at £102.13. To incur, say, an extra £20.00 per month as a direct result of the extra VAT would mean you were spending £940 per month.

As an individual, it’s doubtful you will feel a financial impact from this change.

So although an increase from 17.5% to 20% sounds a lot, the only real winner will be the government. Some things never change.

Tags: Cash, Change, VAT