Consumers plan big purchases ahead of VAT hike

A third of consumers plan to rush through big purchases this year to beat January's VAT hike, a survey suggested today.

Around 37% of people said they were bringing forward major purchases to before the end of December to pay VAT at 17.5% on them, rather than the new 20% rate that comes in at the beginning of next year, according to price comparison website uSwitch.com.

People typically expect to spend around £2,300 more than they usually would at this time of year to beat the tax rise.

Just under half of this spending will be on electronic gadgets, while 36% will go on white goods and 29% on holidays, with around a fifth of money being spent on car purchases that have been brought forward.

Eight out of 10 people said they thought the VAT rise would have an impact on their finances next year, with 47% of people saying they would think twice before buying anything that was not essential, while 24% said they would reconsider any big purchase.

But despite this, many consumers are confused about what goods and services they actually have to pay VAT on.

Around 45% of consumers do not know whether energy bills are subject to VAT and 36% thought they were charged the full rate of 17.5% on them, while 29% thought they pay the tax on food.

But in reality VAT is charged at only 5% on energy bills, while most basic food stuffs are exempt from it completely.

More than three-quarters of consumers thought they paid VAT on home and car insurance, when they do not, although they do pay Insurance Premium Tax on these products and that is set to increase from 5% to 6% in January. A further 69% of people wrongly thought they paid VAT on airline tickets.

However, nine out of 10 consumers knew they paid VAT on petrol, with 93% knowing the tax was charged on adults' clothes and the same proportion knew it was paid on white goods.

Ann Robinson, director of consumer policy at uSwitch.com, said: "Most people know they will be hit by the VAT hikes - they just don't know how.

"Many of the home essentials such as phone, fuel and insurance are going to be hit by the hikes. Energy bills will be spared but this will be cold comfort to the millions witnessing another round of price hikes."

* Consumer Opinion Panel questioned 1,500 people during November.