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Preparing for the Pinch in 2011

Guest post by: Gary Baker

Article Overview: Great Britain was once of the lowest VAT charging countries in Europe, but thanks to the emergency Budget it will soon rise to 20%. But what exactly is VAT, what is it charged on and how does it compare to other countries?

Preparing for the Pinch in 2011

Great Britain was once of the lowest VAT charging countries in Europe, but thanks to the emergency Budget it will soon rise to 20%. But what exactly is VAT, what is it charged on and how does it compare to other countries? What is VAT?

Value Added Tax is the tax you have to pay whenever you buy products. It is levied on most business transactions and goods. However VAT is not included on all products, it is not charged on food, clothes, newspapers and magazines. Others including energy bills have a reduced rate.

What is the UK's current VAT rate?

There are three different VAT rates that exist within the UK. The first is the standard rate which is currently at 17.5%; the second is the reduced rate which is 5% and the third rate is 0%. From 4th January 2011, rates will be 20%, 5% and 0%, respectively.

How does the UK's tax rate compare to the rest of Europe?

The UK along with Spain and Luxembourg currently has one of the lowest VAT rates within the whole of Europe, while other countries like Sweden, Greece, Denmark and Poland currently have some of the highest charged VAT rates in Europe with rates well above 20%.

The lowest rate is 15% in Cyprus, the highest 25% in Sweden, Denmark and Hungary. Once the 20% rate comes in, the UK will sit just above Germany (19%), France (19.6%), but below Ireland (21%), Greece (23%) and Denmark, Sweden and Hungary (25%).

What about other countries like America?

America does not have VAT, instead it has a sales tax. This is a tax added onto the price of goods that are purchased by a consumer, and differs across states. Typically goods are advertised at a certain price and then the sales tax is added.

Colorado's rate is set at 2.9%, while New York is at 4% and Washington D.C. sits at 6.5%. Arkansas currently holds the second highest sales tax within the U.S. with a rate of 9.25%, while California holds the top position with 10.75%.

Alaska, Delaware, Montana, New Hampshire and Oregon are the only states in the US that haven't implemented sales tax. Unlike the UK, tax is included on the basic items such as food, clothes, cars, and household items, but not on school fees, stocks and bonds or real estate investments.

What does the rise mean for the average consumer?

This rise in VAT comes as increasing numbers of consumers in the UK say they are planning to spend less anyway. A recent report by TNS Finance, showed that 30% said they were less likely to both eat out and book an overseas holiday, while 39% were less likely to make high value purchases.

On smaller items, the rise is barely noticeable but on big ticket purchases it can make a sizable difference, so if you are planning a big purchase, buy before the VAT increase. For example, saving £425 on a £2o,000 car will "pay for" that in-built navigation system upgrade you always wanted!!

If you are considering starting a business but haven't a clue what, one way to narrow down the options and keep your accounting as simple as possible is to consider sellingVAT exempt items, such as gold investment coins, books and certain education, training and information products.

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Article Tags: business opportunity, financial education, financial literacy, gold, VAT rise



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