Why it's time to fly out for some American bargains

With the pound so strong against the dollar it's time to go shopping in the US, says James Daley

As the pound hit new 26-year highs against the dollar this week, the economic case for taking a Christmas shopping trip across the pond this autumn became ever stronger.

According to the exchange company, Travelex – whose website promises to offer the most competitive currency rates online – £1,000 will now buy you $2,000.10. And if you shop using a credit card abroad, for which exchange rates tend to be even more competitive, you will be able to get well over two dollars to the pound.

Even before the collapse in the dollar over the past couple of years, most consumer goods tended to be cheaper in the US than they are over here. However, with the exchange rate now officially beyond $2.06 to the pound, the cost of buying just about anything on the other side of the Atlantic is very significantly lower than it is in Britain.

A brand new 40GB Playstation 3, for example, complete with one additional game, will set you back some £329.99 if you buy it down at your local Currys Digital store. At Walmart in the US, however, the same deal comes in at just $399.99, which is just £193.55 at the current exchange rate – a cool saving of over £136.

It's a similar story when it comes to laptops. A 15in Apple macbook pro will cost you almost £500 less at the Apple store in New York than it'll cost you at Currys in London.

Of course, there's the small factor of your flight and accommodation to take into account. But if you're planning on doing some serious shopping, the trip can quite easily pay for itself. According to Flight Centre, the travel agents, a three night trip to New York, including a stay at a three-star hotel, would set you back in the region of £399 at the moment, while flights and three nights in a four-star hotel in Washington would cost £379.

If you are planning on going crazy in the shops in the US, however, one important thing to watch out for is the tax. All but five US states charge sales tax – typically between 5 and 9 per cent – which is similar to VAT in the UK. Unlike VAT, however, it is not added on to the price until you take your item to the till – so it's worth finding out exactly how much tax you're likely to pay before you make a purchase.

The alternative is to head to New Hampshire, Delaware, Oregon, Montana or Alaska – where there is no sales tax. However, even if you manage to avoid paying any tax in the US, you're likely to also be liable to pay it to the UK Revenue & Customs department when you land back in the UK.

According to UK law, you're only allowed to bring products worth a maximum of £145 (rising to £290 next year) back to the country from outside of the EU, before you become liable to start paying VAT at 17.5 per cent, as well as import duty, which varies considerably (and rather randomly). For example, according to Jonathan Wilton of accountants Grant Thornton, women's outer-clothing is currently subject to duty at 13 per cent, while underwear is only charged at 6.5 per cent. Many electrical items – such as laptops and games consoles – are duty-free. However, you will still be liable for your 17.5 per cent VAT.

"The duties are based on whether or not the products you are buying are made in the EU – it's a sort of protectionism," says Wilton. "If you're buying something that is also made in Europe, and is effectively in competition with European products, then you'll be charged import duty."

In practice, ensuring that holiday shoppers pay their duty and tax is very hard for the authorities to enforce. If you buy some new clothes worth a few hundred pounds while you're in the US, it may be difficult for the officials to prove that these are new purchases, even if you are unlucky enough to get stopped. And in reality, small-time abuses of the system are not what customs officials spend their time trying to stop.

A spokesman for HMRC says customs' main concern is stopping illegal items coming into the country – such as drugs or child pornography. However, if you get caught avoiding your duty and VAT, even to a relatively small degree, the customs officers have the right to fine and even prosecute you.

The good news is that, for the first time in many years, it's now possible to pay all your duties and taxes and still save money. In the case of your new Playstation 3, for example, you would still save over £100 even after you'd paid the 17.5 per cent VAT. In fact, even if you bought it in New York, where you would pay 8.375 per cent sales tax, and then paid your VAT, you'd still save more than £80 on buying it from Currys.

Obviously, if you pay all your taxes, you'll need to be buying quite a lot to make enough savings to pay for your airfare and accommodation. But if you were planning on taking a trip to the US anyway, then you're bound to end up quids in.

For more information on import duty, visit the HMRC website at www.hmrc.gov.uk

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