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VAT Returns to 17.5%

Gordon Kelly


VAT Returns to 17.5%

Did it make any difference to your life?

After more than a year of being reduced to 15 per cent in the UK, VAT (value added tax - possibly one of the greatest misnomers) has returned to its usual rate of 17.5 per cent. However confusion reigns.

Despite HM Revenue & Customs insisting "If you are a retailer you must use the 17.5 per cent rate for all takings that you receive on or after 1 January 2010" numerous major chains, including Argos, Tesco and Arcadia Group stores such as Top Shop, Dorothy Perkins and Miss Selfridge said they will either absorb or delay the VAT hike.

"We work hard to keep prices down for customers, which is why we have frozen VAT on thousands of products at the lower rate of 15%," said a Tesco spokesperson. "A small proportion of products will have increased in price, but this is either because of special offers coming to an end or an increase in the cost price."

In the electronics sector virtually all manufacturers are expected to fall in line with the return to 17.5 per cent. Unsurprisingly this includes Apple, which has already increased its prices so that the 27in iMac starts from £1,378 (up £29) while a sim free 16GB iPhone 3GS is now a hefty £449.

The VAT reduction was designed to help save UK shoppers £11bn during 2009 and help fuel the economy. Whether it has been a success or not has been a matter for some debate. Personally I found it just meant price tags looked chaotic as typical price points such as £49.99 and £99.99 turned into messes like £48.93 and £97.87 and we all lugged around more change.

Still, my 9 key got a rest.

Wakey, wakey...


HM Revenue & Customs Official Announcement

iain coghill

January 2, 2010, 2:04 pm

"We work hard to keep prices down for customers, which is why we have frozen VAT on thousands of products at the lower rate of 15%,"

They have not frozen VAT, they are reducing the base prices to keep the net price stable (for a while). Retailers make these claims to seed confusion amongst shoppers. A confused shopper is more likely to swallow their marketing spin.


January 2, 2010, 8:37 pm

When the rise kicks in, the price of goods the consumer purchases may be at the same prices, but the retailer will be absorbing (paying itself) the additional 2.5% extra in tax so it is in effect frozen in the sense the consumer won't pay anymore for the product than they did under the 15% rate.

Stores that have no choice but to "freeze VAT" or in other words, absorb the cost of the increase are shops like Poundland that have structured their business to benefit from lower taxes, and also take the hit of increases. Expect to see more 3 for £2 offers at Poundland than you previously saw.

Whether the consumer understands this is another matter.


January 3, 2010, 2:30 am

I hate false advertising and wish companies were fined for these sorts of misleading statements. It is no wonder the customer can get so easily confused.


January 3, 2010, 6:52 pm

I think that the drop in VAT was a tremendous mistake - it worked out as a less than 2.5% drop in prices for us - hardly enough to get us rushing out to buy, or leave you with enough extra to save in a bank (if you'd dare) but the amount it cost the Government was significant when they could use all the money they could get.


January 4, 2010, 4:03 pm

@Still, my 9 key got a rest.

Am I missing something here, were does the 9 key come into play?.

Did it make any difference, yes the government borrowed more money. So in effect we all took out a loan.. :)


January 4, 2010, 4:51 pm

@Keith, surely the line before spelt it out:

"typical price points such as £49.99 and £99.99 turned into messes like £48.93 and £97.87 and we all lugged around more change. "

JB 2

January 4, 2010, 4:57 pm

I've found that the VAT increase has been used as an excuse for a massive increase in some prices. I was interested in the Lenovo T400s think pad. On 31st of December it was £1070, on the 1st Jan it became £1278! A 20% increase in price - and this was on the first of January during what is described as a "January Sale"!!! I looked again just now and it has now become £1302:97 (at laptopsdirect.co.uk model NSDCVUK).


January 4, 2010, 6:05 pm

"value added tax - possibly one of the greatest misnomers" - companies pay tax on the value of the products they sell, but claim it back on the value of the raw materials that went in. Therefore they are effectively taxed only on the value that they've added. Value Added Tax, in other words!

But for consumers, sure, rip-off Britain, government scumbags, etc. etc. :-)

Hamish Campbell

January 4, 2010, 7:17 pm

Oh stop complaining, 25% over here in Denmark.

And it never went down.


January 4, 2010, 10:17 pm

@haim: Oh stop complaining, 25% over here in Denmark.

Oh in that case it makes its all OK then. Or you could maybe look at it another way, should Denmark people be complaining more.. :)

From what I can gather, Denmark tax per GDP is 50%, UK 40%, USA 30% and China 17%. But the problem I have with the above figures is that on top of this our government is so inept that after taking over 40% of all the country's revenue, it still has to borrow $Billions and we have nothing to show for it, eg. No rail system worth talking about, roads with ever increasing pot holes, flood defences or guttering clearing useless. Maybe in Denmark your Tax is higher, but I bet you have things to show for it. Instead our government decides that spending £billions of tax payers money bailing out banks who caused our problems in the first place is money well spent.

So, in a nutshell @haim, no I think we shouldn't stop complaining, we should be complaining more, a LOT more.


January 4, 2010, 11:20 pm

@ JB: don't get me started, it's the biggest con of the century

before the recession a citroen c1 cost £6300 on the road now today it costs £8495 WITH £2000 scrappage allowance, the same is true with every car on sale and I bet they will soon put them up again because of the "VAT"

JB 2

January 5, 2010, 3:49 pm

@Jay: I'd better keep my 8 year old Citroen Picasso going a bit longer then! This is getting off topic, but prior to this recession I thought prices would go down in a recession as there is less demand. But, instead, what seems to happen is prices rise to compensate for smaller markets and options disappear - the price of the 2009 Mac Pro is hugely more than the 2008 model (compared to component costs), only seriously expensive models of 30 inch monitors are available (what happened to the Samsung ?) etc. Needless to say, I've bought neither whilst I was getting close to doing so in 2008.


January 6, 2010, 6:34 am

The price changes on anything made in EU or Asia and therefore sourced in Euros or US Dollars reflect that our currency has devalued significantly against those currencies. Funnily enough most other people don't share Gordon Browns confidence in our economy.

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