Were you suprised at today's VAT rate increase?

When we looked into our crystal ball a couple of months ago we predicted that the rate of VAT would rise to 20%. What we didn't expect was that it wouldn't come into effect for another 6 months. So, today's news from the Chancellor that the rate of VAT will not go up until 4 January 2011 has come as quite a surprise to us all.

The majority of people who took part in our Budget Survey agreed that the rate would be rising to 20% within 3 months of the announcement, only 6% thought it would be the New Year. And, with this increase in VAT set to raise £13 billion in revenue, we all believe this will go someway to reducing the national deficit.

So, there we have it, we now know that the rate won't be increasing for some 6 months, some temporary relief for the consumer, however, we must remain mindful that an increase is just around the corner and there is still the potential for further rises to the rate of VAT.

In response to today's news, John Crawford, our Managing Director comments: "Such a rise will mitigate the bitter medicine of spending cuts and deferring the rise until next year in the hope of stimulating consumer demand will give time for businesses to prepare – important since many are still fighting for their lives.

Whether registered for VAT or not, businesses will pay more for their goods and materials. Either they subsume those costs and reduce their margins, or they raise their prices.
As ever, consumers will pick up the tab in any increase passed on in the supply chain when they buy the affected goods and services.
If you are going to have to spend 2.5% more on your big ticket VAT items, it makes sense to buy them before the end of the year."

Look out later for full details of the changes to VAT in our budget newsletter.