Budget VAT increases means dearer cars and fuel

June 22, 2010 | By | In Statistics

Your plans might have included changing your car for a new one in 2011. But you’d be wise to buy this year instead if you can. The Chancellor George Osborne’s emergency budget includes a provision to increase the rate of Value Added Tax to 20% from next January.

The rate levied on new vehicles is currently 17.5% so the increase will add a little over £400 to the price of a typical £15,000 car. If you’re a really savvy buyer, you’ll time ordering your car for delivery early in 2011, because a car registered in January will be worth more second-hand than a December 2010-registered model.

Provided that you pay in full for the car before January 4 – and the seller gives you a VAT receipt for the amount – you’ll pay VAT on the lower rate.

The rise will affect new cars more than it will second-hand ones. VAT isn’t charged on used cars, although dealers pay it on the profit they take from selling. So any price increases resulting will be very slight. However, list price rises for new cars could focus more buyers on the used-car market and increased demand could push up prices.

Petrol and diesel prices won’t specifically mentioned in the Budget but they will rise when VAT ds – by 3p per litre, although this figure could be higher should prices rise because of increases in the world wholesale price of oil. Even at 20%, the level of VAT we’ll pay will be comparable to our European neighbours. The French currently pay 19.6%, Germans pay 19% and in Italy, the rate is already 20%. Spain, however, pays only 16% but in Sweden the rate is 25% while Iceland is among the nations charged the most, at 25.5%.

The planned fuel duty increases announced by the previous Chancellor, Alastair Darling, have been allowed to stand. That means a further three increases likely within the next 11 months with the first due in September.

And while Mr Osborne has agreed to examine the issue of fuel price subsidies for those who live in rural areas (and must rely on their cars) he has not announced any specific benefits.

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