Warning issued over VAT debt risk

Some consumers risk getting into debt problems because they are unaware of the implications of the VAT rise in January, it has been claimed.

Citizens Advice (CAB) revealed research showing 13 per cent of people do not know about the forthcoming increase from 17.5 per cent to 20 per cent, while 18 per cent of consumers do not know what the VAT rate is now.

The risk of extra costs making things worse for already hard-pressed consumers in the new year makes it more important to be frugal this Christmas, CAB chief executive Gillian Guy remarked.

She said: “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. Planning, budgeting and organisation are key to avoid getting into debt at Christmas and beyond.”

In a bid to prevent people getting into bad debts over the festive period, the CAB has produced a guide advising people how to budget.

Tips include avoiding doorstep lenders and unauthorised overdrafts, while those who do use credit cards should make sure they get the best deal to limit the debt this accrues.

Chancellor George Osborne announced the rise in VAT in his emergency Budget in June, shortly after the coalition government took power.

Describing the move as “unavoidable” in view of the state of the public finances, he said it will raise £13 billion over five years.

However, he also revealed items currently not subject to VAT – such as newspapers, food and children’s clothing – will remain zero rated.