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VAT a mystery to one in five

VAT a mystery to one in five

Category: Money

Updated: 07/12/2010
First Published: 07/12/2010

MONEYFACTS ARCHIVE
This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Despite the imminent rise in the rate of VAT, there is a worrying lack of knowledge about the tax. As part of the Government's effort to drive down the deficit budget, the rate of VAT is to increase from 17.5% to 20% in the New Year.

The increase will affect practically everybody as VAT, or value added tax, is charged on almost all goods, with a few exceptions such as baby clothes.

Despite this, research by the Citizens Advice Bureau has found that one in eight people (13%) are not aware that the tax will be rising on New Year's Day, meaning the pain of any Christmas debt hangover could be made even worse.

It was also found that a fifth of people (18%) could not identify the current VAT rate. The coalition are not alone in tinkering with the rate, as Labour reduced it from 17.5% to 15% for a time during the financial crisis in an effort to encourage spending.

"Christmas is a time of giving and it's all too easy to overspend. There are enticing offers and pressures to buy and it can be tempting to ignore how much you are spending, but this may lead to problems in the New Year," said Gillian Guy, chief executive of the Citizens Advice Bureau.

"Planning, budgeting and organisation are key to avoid getting into debt at Christmas and beyond.

"This January could be worse than most for those who are not planning ahead as the 20% VAT increase will put more pressure on budgets. At this time of year we urge people to consider their spending carefully."

Luckily the majority of Britons (58%) said that they do budget for Christmas to make sure they don't overspend. The savviest budgeters are younger than people might think with those aged 24-35 the most likely age group to keep on top of their Yuletide spend.

However, it is women who will be worrying about their cash more than their male counterparts, 44% of whom claim they will not be cutting back at all this Christmas.

Check out our VAT increase Tip for more help.

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.

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