Act fast to beat January's VAT hike

A £10 DVD will cost £10.22 (or more if companies round up) and a £5,000 kitchen will cost £110 more. Therefore, it's worth making important purchases this month to cut costs.

VAT currently stands at 15% following chancellor Alistair Darling's temporary cut last year.

Here's a Q&A guide on how to beat the hike:

Q. By how much will prices rise? A. It isn't as simple as adding 2.5% to the price. To find the increase multiply the price by 0.022, that's just over 2p per pound.

Q. Does VAT apply to everything? A. No, you don't pay it on a few items like food, books, kids' clothes & overseas travel/accommodation (but you may pay overseas tax).

Q. Is it when you pay or receive goods that counts? A. The VAT rate's usually determined when you pay or a tax invoice is raised. So pay now but receive goods in 2010, and 15% is charged.

Yet there are complications. You could pay the higher rate if a VAT receipt's raised now but you take over six months to pay; or you try to pay now to beat the deadline when there's no chance of delivery for an age.Q. What if you pay the deposit now and the rest in 2010? A. The deposit is charged at 15%, the rest of the balance depends on when the VAT invoice is raised. So if it's a big purchase ask the retailer to raise it before 2009 ends.

Q. Won't items be cheaper in January's sales anyway? A. It's likely sales reductions will more than compensate for the VAT rise, yet as some start on Boxing Day, you could get the best of both worlds at the end of this month.

Q. Will all firms pass on rises? A. That's up to them. For instance, John Lewis says it's likely to hold off increasing prices until February.

Q. What if the shop mistakenly charges too little VAT? A. The tax is for it, not you, to pay. So it cannot ask for extra cash if you've already paid or signed a contract.

Further reading/Key links

Cut costs: High Street Haggling, Cheap Online Shopping