What the VAT hike means for you

Robert Powell hits the streets to find out what you know about the VAT rise!

The VAT rise is here to stay meaning most things are now that little bit more expensive.

But how much do we actually know about this pesky tax? I’ve hit the streets to find out...

The VAT rise

Most people knew that VAT had gone up by a few per cent - but not everyone knew the exact rate!

In fact, VAT has increased by 2.5% from 17.5 to 20%. This is the highest it’s ever been since it was introduced back in 1973 at an initial rate of just 15%.

2.5% may not sound like a lot but if you’re making big purchases you could be hit hard by the tax hike.

If you’re after a top of the range MacBook pro – you’ll pay £40 more now than you would have last year.

It’s also a bad time to be buying a car – spend £9,700 on a new Peugeot 207 and you’ll be hit with over £200 extra in VAT.

Food

Most people I spoke thought that all foods were subject to VAT. And when I asked them about specific foods, a majority throught that the more luxurious item would be subject to VAT.

Most basic foods are actually exempt from VAT – but there are some strange exceptions.

As cakes are exempt, you’ll pay VAT on a gingerbread man but not a Jaffa cake. But this didn’t stop customs and excise taking McVities to court in 1991 as they thought Jaffa cakes were actually chocolate covered biscuits.

Fortunately for Jaffa cake lovers McVities won and Jaffa cakes are still VAT free!

Another weird exception is crisps, which you will pay VAT on – even though tortilla chips are exempt.

And if you’re a fan of salted or roasted nuts make sure you buy ones supplied in shells – as they’re VAT free, whilst nuts without their shells will be subject to increased rate.

Other Exceptions

Almost everyone I spoke to thought that energy, insurance and public transport were all subject to VAT.

In fact, you won’t pay standard rate VAT on gas, electricity, oil or solid fuel as these are all charged at a 5% VAT rate.

VAT is not charged on insurance but it does have its own tax which has also gone up from 5 to 6% this month.

And all passenger travel in vessels that carry more than 10 people is also VAT free.

So there you have it, it’s looking set to be an expensive year – so I’m off to stock up on Jaffa cakes!

More: Why you pay more tax than banks The taxman is watching your eBay account!