How does VAT work?
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There are three bands of VAT: zero, 5% and 20%. Many regular purchases such as food and children's clothing are zero-rated. Domestic fuel and wind-turbine installation are 5%. Other things like hot take-aways and televisions are 20%.
The government has raised the standard VAT rate to 20%. This is the effect that has had on a teddy that previously cost £9.99.
Value added tax, or VAT, is the tax you have to pay when you buy goods or services.
There are various items for which you do not have to pay any VAT, such as most food, children's clothing, newspapers and magazines.
The standard rate of VAT rose from 17.5% to 20% on 4 January 2011, which is still not high by EU standards.
Standard rates of VAT in the European Union |
|||||
|---|---|---|---|---|---|
| Country | VAT % | Country | VAT % | Country | VAT % |
|
Source: TMF Group |
|||||
|
Austria |
20 |
Germany |
19 |
Netherlands |
19 |
|
Belgium |
21 |
Greece |
23 |
Poland |
23 |
|
Bulgaria |
20 |
Hungary |
25 |
Portugal |
23 |
|
Cyprus |
15 |
Ireland |
21 |
Romania |
24 |
|
Czech Republic |
20 |
Italy |
20 |
Slovakia |
20 |
|
Denmark |
25 |
Latvia |
22 |
Slovenia |
20 |
|
Estonia |
20 |
Lithuania |
21 |
Spain |
18 |
|
Finland |
23 |
Luxembourg |
15 |
Sweden |
25 |
|
France |
19.6 |
Malta |
18 |
UK |
20 |
The government hopes that the increase in UK VAT will raise an extra Β£13bn a year by 2015.
Labour has said that the increase will threaten the fragile economic recovery.
Calculate VAT rise
How much more do things cost following the VAT rise to 20%?
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