Beat the January VAT rise

A £10 DVD will increase in price to £10.21, assuming retailers hike prices in line with the tax rise, and a £5,000 kitchen will cost £105 more (see the Cheap Online Shopping guide).

Therefore, it's worth making large purchases – where the hikes are higher – in advance to cut costs.

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

Will all firms increase prices?

That's up to them. VAT is a tax on companies, not on buyers. It is therefore up to retailers whether they charge consumers more to cover their costs, though most will.

By how much will prices rise?

It isn't as simple as adding 2.5% to the cost. Assuming prices rise in line with the tax increase, multiply the current price by 1.021 to get the exact figure. In other words, add 2.1%.

However, many firms that increase prices are likely to round them up or down.

Does VAT apply to everything?

No, you don't pay it on a few items such as food, books and children's clothes.

Is it when you pay or receive goods that counts?

The VAT rate's usually determined when you pay or when a tax invoice is raised. When the latter administrative function happens is down to the retailer.

So if you pay now but receive the goods in 2011, 17.5% VAT is due.

Yet there are complications. The higher rate could be charged if a VAT invoice is 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.What if you pay the deposit now and the rest in 2011?

The deposit is charged at 17.5%, the rest of the balance depends on when the VAT invoice is raised. So ask the retailer to raise it before 2010 ends.

Won't items be cheaper in January's sales anyway?

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.

What if the shop mistakenly charges too little VAT?

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