VAT rate rises from 17.5% to 20%
Today, January 4th, 2011, The standard rate of VAT rises from 17.5% to 20% as the government is looking to boost tax revenues to cut its deficit.
Various business groups have warned that retailers will be hit by this increase while opponents have said the poorest will be hit hardest.
The Government is saying that the rise is a necessity to help bring down the UK”s huge budget deficit. The Chancellor George Osborne said that the move was more “progressive” than a hike in income tax or National Insurance. Food, children”s clothing, newspapers and magazines are still not subject to VAT.
Research by the Centre for Retail Research and the online shopping group suggests that retail sales will fall by about £2.2bn in the first three months of the year as a result of the rise in VAT. More than 7 out of 10 retailers which were polled by the British Retail Consortium thought that most people would bring forward their purchases to beat the VAT increase.
“Of course, this will effect the first quarter of this year, perhaps the second,” said Frank Waller from Stonehouse Accountancy in Peterborough.