The return of VAT to 17.5% from 1 January is causing confusion for shoppers with some retailers passing the rise on later this year.
Alistair Darling cut VAT to 15% back in December 2008, but this was only a temporary measure aimed at encouraging consumers to spend and help the high street weather the recession.
Despite calls for an extension to the cut, VAT will return to 17.5% from 1 January. According to the Centre for Economic and Business Research, a higher rate of VAT will put people off spending – in fact, it forecasts a 0.2% fall in consumer spending in 2010.
But not all retailers will pass on the rise immediately, which means it is possible to avoid seeing your shopping bill increase by 2.5% straightaway.
1. Change where you shop
Arcadia boss Sir Philip Green says his stores – including Top Shop, BHS, Dorothy Perkins and Miss Selfridge – will absorb the higher rate of VAT on behalf of shoppers.
John Lewis says it will not increase prices to take into account a 17.5% rate of VAT until the beginning of February, at the earliest. This will take into accounts its ‘Never Knowingly Undersold’ policy.
Argos will not increase prices until its new catalogue is published at the end of January.
Boots and major supermarkets Sainsbury’s and Tesco say they will phase in the higher rate of VAT. ASDA, meanwhile, will increase prices immediately.
M&S says it will increase prices on clothes, homeware and gifts from the 1 January, but will wait until 11 January to apply the higher rate of VAT on eligible food products.
2. Review your shopping basket
While most food is exempt from VAT, the majority of confectionary, drinks and snacks are not. In addition, other staples often purchased at supermarkets – such as toothpaste and cleaning products – will be affected by the VAT rise.
However, Jonny Steel, spokesman for mySupermarket.co.uk, says there are some “strange discrepancies” between the types of foods that qualify for VAT. While this is confusing, it does present an opportunity to dodge paying VAT on many items of food.
“For instance, a gingerbread man decorated with two chocolate eyes is exempt from VAT, but if it contains any more chocolate, standard-rated VAT is charged,” Steel adds. “Likewise, unshelled salted nuts are exempt, but shelled salted nuts are not.”
Items such as Jaffa cakes, milkshakes, chocolate spread and tortilla or corn chips are zero-rated VAT.
So, by swapping the type of food products you buy, it is possible to reduce your VAT bill.
|Standard-rated VAT items||Zero-rate VAT items|
|Wholly or partly chocolate covered biscuits||Chocolate chip biscuits|
|Gingerbread men||Jaffa Cakes|
|Arctic Rolls||Cream Gateaux|
|Chocolate bar||Chocolate spread|
|Nuts or fruits covered in chocolate or yogurt||Toffee apples|
|Flavourings for milk shake||Milkshake|
|Potato crisps||Tortilla or corn chips|
|Roasted or salted nuts without shells||Roasted or salted nuts supplied in shells (monkey nuts, pistachios)|
3. Be your own estate agent
Estate agent fees average around 1.5%, but can be as high as 2.5% plus VAT – so from 1 January, the cost of selling your home is liable to rise.
However, it is possible to bypass estate agents and sell your home yourself. There are dozens of websites that allow you to market your home directly to buyers, with the facility to upload photos and a description of the property. Although some websites offer this service for free, most require you to pay a one-off fee.
You can find independent reviews and summaries of around 40 private sale websites at private-house-sales.info. This free search engine allows you to find sites based on star rating or the cost. Many websites will advertise your property on other websites, in order to gain more exposure, although you will usually have to pay a premium for this.
Propertyfinder.com and Fish4homes.com are two of the most popular external websites that are offered by private sale services. And it might be worth paying extra to have your home promoted on these sites, as the number of people using them could improve your chances of making a sale.
Read more on how to bypass estate agents and sell your own home
4. Vouchers and discounts
Ultimately, it’s near impossible to avoid the higher rate of VAT completely. However, adopting a savvy attitude to shopping is a good way to offset it.
If there's a particular item you're after, you can use a shopping comparison site. Most of the sites, such as Shopzilla, Pricerunner and Kelkoo, have a sales tool and will list the sale price of items.
Sales are another way to pick up items on the cheap. If you have a specific chain of stores in mind, it's worth subscribing to its newsletter, as this will offer advance notice of sales. Most retailers have a ‘sale’ section of their websites.
Also check out local and national newspapers for information on when the sales start.
Vouchers are another good way to cut the cost of your shopping. Keep an eye open for special offers and ask friends or work colleagues to share their retail secrets. You can also go in search of your own bargains by taking advantage of voucher websites. From buy-one-get-one-free discounts, to free delivery or money off when you spend a certain amount, these vouchers can save you money on shopping and entertainment.
You can download vouchers on Moneywise - and also search for offers in your area.
Or VoucherCodes.co.uk and myvouchercodes.co.uk are two of the most popular websites offering vouchers. Other places to find vouchers are on the back of receipts and bus/cinema tickets, in magazines and newspapers and via online newsletters.
When in search of retail bargains, don’t ‘discount’ discount stores – TK Maxx, for example, sells end of range fashion and homeware products from top designers and famous label manufacturers from across the world. Factory shops, warehouse stores and shopping villages can also help you save money. John Lewis, Monsoon, Paul Smith, Calvin Klein and Burberry all have outlet stores, and you can find warehouse sales by registering with websites like fashionconfidential.com.