On January 1st the VAT rate will go back to its normal 17.5% against 15% over the last year, for most businesses they believe it made no difference at all, 2.5% reduction on a price just isn’t that attractive in a world where 50% off is more the norm. There is an arguement that international contracts have been made in areas wher 2.5% could mean a few million here and there, but most small businesses have not benefitted from the reduction.
An area that may have gained is the new car market. Take away a few grand for the scrappage scheme then another 2.5% on the balance can make the difference between affordable and too expensive. But on new years day, we all be faced with an increase or will we?
Looking through many shopping sites for Chistmas I noticed all prices still ending in 99p. Considering most prices tended to end with the 99p anyway before the VAT reduction, I find it hard to see when we actually got the extra 2.5% back for anything. The reality is more like businesses just charged the same and gained a bit more into the bargain. So it is very likley that the consumer will not lose out for the VAT increase but business mat suffer.
Even business services are unlikely to be affected returning to the motor trade take business car lease as an example. Business car lease may cost more as a monthly payment, but as VAT is refundable and business lease falls into that bracket depending on CO2 emmissions, the executive owner will be no worse off. In fact it is hard to understand if the benefits of the lower VAT rate actually covers the costs of outting this into practice. Take accountants, or pricing within the retail sectop, it cost money to report takings and purchases in a different tax code.
So on January 1st will we see prices rise? I think there is a good chance we will, including those who did not reduce prices when it was reduced. More money to the accountants.