What will 20% VAT mean for you?

Updated on June 2, 2022

What will your life look like with a 20 percent VAT?
Kelley-Mae Mahoney’s work
23-June-2010 Updated at 10:48 BST

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By virtue of the emergency Budget, the UK will soon have one of the highest VAT rates in Europe.

Cartoon about inflation
On the other hand, how does the UK’s 20% VAT rate stack up against other countries’ rates?

On the other hand, how does it stack up against other countries?

Understand what the 20% rate implies for yourself and how much you actually know about Value Added Tax (VAT).

›› VAT is raised to 20%

What is VAT?

V.A.T. is the tax you must pay while purchasing goods and services. Taxes are imposed on a wide range of transactions, including those involving products and services.

Food, clothing, newspapers, and magazines are all VAT-exempt, but not all things are. Others, such as utility bills, have seen a decline in rat

What is the UK’s current VAT rate?

There are three VAT rates in the United Kingdom. The regular rate is currently 17.5 percent; the reduced rate is 5 percent, and the zero rate is also available.

From January 4, 2011, the rates will be 20%, 5%, and 0% accordingly.

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

The UK, Spain, and Luxemburg all have the lowest VAT rates in Europe now. However, several European countries, such as Sweden, Greece, Denmark, and Poland, levy VAT rates far above 20%. Cyprus has the lowest incidence at 15%, while Sweden, Denmark, and Hungary have the highest rates at 25%.

Just over Germany (19.6 percent) and France (19.6 percent, but below Ireland (21 percent), Greece (23 percent) and Denmark, Sweden, and Hungary (Denmark, Sweden, and Hungary) (25 percent ).

›› VAT rise calculator

What about sales tax in other countries like America?

Instead of VAT, the United States uses a sales tax. As a customer, you pay this tax when you buy something, and it varies from state to state. Typically, a product’s listed price is followed by the addition of sales tax.

For comparison, the state of Colorado’s unemployment rate is only 2.9%, compared to 4.0% in New York and 6.5% in Washington, DC. Arkansas now has the second-highest sales tax in the United States, at 9.25%, while California has the highest, at 10.75%.. Only Alaska, Delaware, Montana, New Hampshire, and Oregon do not have a sales tax.

Food, clothing, cars and household products, as well as school tuition, stock and bonds and real estate investments, are not taxed in the United Kingdom.

VAT RATES: HOW DOES UK COMPARE?
Country VAT rate
Sweden 25%
Denmark 25%
Romania 24%
Greece 23%
Ireland 21% (to rise to 23%)
Belgium 21%
Portugal 21%
Italy 20%
United Kingdom 20% (as of 4 Jan 2011 previously 17.5%)
France 19.6%
Germany 19%
Spain 18% (was 16%)
Cyprus 15%

 

What effect could the increasing VAT rate have on you?

Mother and child

For example, a purchase costing £10 at the existing standard VAT rate would now cost £10.21 if the new rate of 20 percent were to be instituted.

There is no obvious difference in price on lesser products compared to high ticket purchases, but there is a noticeable difference on larger purchases. A new £20,000 car would cost £425 more; a £5,000 kitchen would cost £106 more, and a £750 TV would cost £16 more if the additional 2% VAT was added.

The government could have charged VAT on things that are exempt from VAT if they were desperate enough to do so (zero rate). Food products that were previously taxed at zero would suffer a significant increase in price as a result. A 1% increase in the tax rate would bring in an additional £700 million for the government, according to estimates.

What are the disadvantages of a rise in VAT?

Sainsbury’s and Tesco, two of the country’s largest grocery companies, have both expressed alarm about the UK government’s intention to boost VAT rates.

Sainsbury’s chief executive Justin King cautioned that the poor and vulnerable will be negatively affected by an increase in VAT rates and the elimination of the “zero rate” and stamp a charge on vital items such as food.

Competitors at Tesco, the nation’s largest supermarket chain, have also expressed concern about the impending increase in the VAT rate. Sales have been slowing down recently, according to executives, because drivers are forking over an additional 30 percent in fuel costs and slashing their spending elsewhere. Due to rising fuel costs, the corporation said that consumers were obliged to cut back on their spending. Customers would be forced to make even further cuts if the VAT were raised.

This comes at a time when more and more customers indicate they intend to cut back on their spending in the near future. 30% said they were less inclined to eat out and plan an international vacation, while 39% said they were less likely to make high-value purchases, according to market research specialists TNS Finance.

On Thursday morning, we’ll provide you a detailed breakdown of what the Budget means for you.

Budget: What 20% VAT means and what you pay it on

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