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How much will the looming VAT increase cost you?

For the last year or so we’ve luxuriated in a decreased VAT rate of 15% – down from the 17.5%. I don’t know about you, but I don’t think I noticed the difference in prices much. With an increase to 20% set for next week, we look at exactly how much extra you can expect to pay for goods and services in 2011.

At first glance, it seems a lot: We take a closer look at the figures to give you a clearer picture about whether it’ll be extra pennies or extra pounds that you’ll be paying out come January 4th 2011.

These are just some of the reported cost increases due to the VAT rise:

The rise will add at least £33 a year to the average shopper’s supermarket basket

Source – The Guardian, June 2010

VAT will rise to 20% on January 4 2011 – costing a typical household £425 a year

Source – MSN Money, June 2010

economists have also predicted it will cost the average middle class family up to £448 a year

Source – Which.co.uk, December 2010

The average family will be £225 a year out of pocket

Source – The Independent, December 2010

With people already struggling with their finances, it’s easy to panic when looking at the figures above but the additional VAT you have to pay will depend on your individual spending.

To help you calculate and plan for the extra expenditure we’ve put together some figures below showing how the VAT increase will affect you:

Price at 17.5% VAT Price at 20% VAT Increase
£5.00 £5.11 £0.11
£10.00 £10.21 £0.21
£20.00 £20.43 £0.43
£50.00 £51.06 £1.06
£100.00 £102.13 £2.13
£200.00 £204.26 £4.26
£300.00 £306.38 £6.38
£400.00 £408.51 £8.51
£500.00 £510.64 £10.64

We used The VAT Calculator, a free online tool, to put together the table above.

It’s also worth remembering that the price of some items won’t change because they are excempt from VAT, such as most food items, books, newspapers, magazines and children’s clothes. You can read more about VAT exempt goods and services on the Directgov website here: VAT Basics for Consumers.

If you’re concerned that your spending is going to rise to an unaffordable level, get in touch with one of our advisors on 0800 019 2095, they will be able to go through your income and expenditure and help you decide the best course of action for your finances. Calls are free from a BT landline but charges from mobiles and other networks may vary. Alternatively fill on our online debt analyser by clicking here and we can call you back.

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