How to make your shopping list VAT-free

Despite descenting comments condemning the 2.5% hike in Vat as regressive I've always thought the opposite, believing it a fairer alternative to hiking basic rate Tax and/or National Insurance rates as the less well off can avoid paying it on necessities.

This submission by Rosie Murray-West and Kara Gammell on Telegraph.co.uk seems to support that view:

If you're worried about the impact of the increase in value added tax (VAT) to 20pc in this Budget, you're not alone. According to shopping comparison website mySupermarket.co.uk, the tax will add an annual average of £33 to each supermarket shopper's basket when it comes in on January 4. For many families reliant on convenience foods, the cost will be far higher.
That's before you even start looking at the extra costs of petrol, clothes, cars, whitegoods and services. Fortunately for the shopping-savvy, there are ways you can beat the tax rise. That's because VAT is a tax of complications and anomalies, and it's possible to cut it out of a substantial part of your shopping basket.

More than 40pc of shoppers will change their spending habits in response to an increase in VAT, according to research by accounting and business services group RSM Tenon.
If you know what is and is not subject to VAT, then you'll be able to adjust your shopping accordingly.
VAT law is supposed to split your supermarket shop between two categories; essential foods, which are zero-rated so that you don't pay any tax, and luxury foods that will be subject to a 20pc tax.
However, because of the difficulty of deciding what constitutes a luxury item, it's possible to buy very similar products at 20pc less than others because they are VAT-free.
Daniel Lyons, VAT partner at accountancy firm Deloitte, said that VAT law was "like French irregular verbs" because there are so many exceptions.
"It used to look fairly sensible 30 years ago, but economics have changed and new products have come on the market," he said.
Jonny Steel, spokesman for mySupermarket.co.uk, said: "There are some strange discrepancies between the types of foods that qualify for VAT, making it hard to predict where the increase will hit shoppers most."
Top tips for those wanting to avoid the tax rise include buying wheat-based snacks or tortilla chips instead of potato crisps, as well as buying ''freshly baked food'' from supermarket bakeries while it is still warm, rather than ''takeaway hot food'' from the takeaway counter, as this will attract VAT.
When buying gingerbread men, check how much chocolate they have on them – any more than a few dots for the eyes and you will be paying VAT.
Perhaps the most important thing to remember concerns nuts and dried fruit. If you buy them in the baking aisle, you're probably not paying any tax, but if you buy them from the snack aisle you'll be paying the full 20pc VAT. Given that you're probably paying a mark-up for packaging anyway, it makes sense to buy them in bigger bags.
VAT SHOPPING LIST
- Takeaway hot food £1.09
- Cereal bars £1.98
- Partly or wholly chocolate-covered shortbread £1.59
- Crystallised ginger £2.04
- Raisins packaged for snacks 70p
- Squash £1.09
- Potato crisps £1.69
- Ready-made popcorn £2.60
- Prawn crackers made from cereals £1.48
- Shelled roasted or salted nuts £1.15 for 100g
- Ice cream and ice lollies £3.99
- Chocolate-coated biscuits £1.25
- Gingerbread men with chocolate decorations 99p
TOTAL: £21.64
NON-VAT SHOPPING LIST
- Freshly baked food £1
- Flapjacks 73p
- Millionaires Shortbread (with caramel layer) £1.19
- Ginger in syrup £1.85
- Raisins packaged for baking 18p
- Milkshake and flavoured milk drinks 85p
- Crisps made of other vegetables and wheat-based snacks such as tortilla chips 89p
- Microwave popcorn £1.99
- Prawn crackers made from tapioca £1.62
- Roasted or salted nuts still in shells or packaged for home baking 65p for £100g
- Frozen ready meals and baked Alaska £2.97
- Chocolate chip biscuits 49p
- Gingerbread men with a few dots of chocolate for eyes 65p

Given the recent reports on the harmful affects of trans fats I would support Vat being applied to such foods. Again there would be a choice to avoid Vat and be fitter too!

This Posted by Joe Martin providing business services for small businesses and the self employed. Find me at joemartin.co.uk

Budget: Osborne to lift tax allowances to help low paid

The rate at which people start paying tax will rise by £1,000 in the Budget but ministers face likely criticism over tax rises and cuts elsewhere.

Nearly 900,000 people earning less than a £7,475 will pay no tax under plans set to be announced by Chancellor George Osborne on Tuesday.

Mr Osborne will say his deficit-cutting package will be "tough but fair" and that the better-off will pay more.

But Labour say the poorest will be hit and cuts are ideologically driven.

They say the economy is too weak to withstand such a spending squeeze and the move could push the UK back into recession.

Mr Osborne will deliver his and the coalition government's first Budget at 1230 BST (1130 GMT), fulfilling the Conservatives' pre-election pledge to hold a Budget within 50 days of coming to office.

Mr Osborne has said the Budget will set out "tough" but necessary plans to bring down borrowing over the next four years and how this will be divided up between spending cuts and tax rises.

The package of austerity measures is widely expected to be toughest for generations.

The government says borrowing levels inherited from Labour - which are set to total £155bn this year - are unsustainable and delaying action will damage market confidence in the UK and store up worse financial problems for the future.

Tax allowances

The chancellor is expected to announce a number of revenue-raising measures, including a levy on bank profits, an increase in capital gains tax and rises in cigarette and alcohol duties while a change in aviation tax is also expected.

But opposition, unions and employer groups have all expressed concerns about the steps being planned amid continuing speculation of a rise in VAT and a freeze on public sector pay beyond the one-year already planned in 2011-2012.

A Labour Party spokesperson said: "The real test for the Budget is what it means for jobs and growth.

"Of course no-one's going to object to an increased personal allowance.

"But if it's paid for by a VAT rise the Tories said they wouldn't implement, and that the Liberals campaigned against, the public will rightly feel short changed."

The BBC's Political Editor Nick Robinson said the government's plans to raise personal tax allowances will take an estimated 880,000 people out of the tax system and also give millions of basic rate taxpayers a tax cut of £200 per year.

The plan is the first step towards a key Lib Dem coalition demand of taking all those earning less than £10,000 out of tax.

The chancellor must find £3.5bn to pay for the giveaway - which will be clawed back from top rate taxpayers - and Labour are likely to argue that it is irresponsible in the current climate.

But Nick Robinson said it will be clear from the chancellor's statement that overall people in all income groups will pay more as a result of other tax rises, spending and benefit cuts and limits to public sector pay and pensions.

However, he has said it is "far from certain" that VAT will rise from its current 17.5%.

'Fiscal bombshell'

In an e-mail to Lib Dem members on Monday evening, Deputy Prime Minister Nick Clegg said the budget deficit amounted to a "fiscal bombshell" that had to be dealt with.

"Without action on the deficit, we will carry on racking up unaffordable debts our children will have to pay off," he said.

"We will carry on spending more money on debt interest than we do on our schools.

"And we will undermine the economic growth needed to create jobs and opportunities for all of us. There is nothing fair, liberal or progressive about any of that."

He rejected claims that the Liberal Democrats had "sold out" after they campaigned during the election against early spending cuts due to the fragility of the economic recovery.

"We have always argued that cuts would be necessary, but the timing should be based on economic circumstances, not political dogma," he said. "The economic situation today means that time has come."

'Hardest thing'

Mr Clegg said the economic situation in Europe had deteriorated in recent months while Labour had exacerbated the situation by making a large number of unfunded spending promises in its last few months.

"So cuts must come," he added. "We have taken the difficult decisions with care, and with fairness at their heart. You will see the stamp of our Liberal Democrat values in tomorrow's Budget. But nonetheless, it will be controversial.

"This is one of the hardest things we will ever have to do, but I assure you, the alternative is worse: rising debts, higher interest rates, less growth and fewer opportunities."

Other measures widely forecast to be included in the Budget include a cut in the headline rate of corporation tax, a two-year freeze in council tax and the scrapping of Labour's planned 1% rise in national insurance contributions paid by employers.

Unions have said any tax rises must fall predominately on the better off while business groups have called for radical reform of public services to avoid across-the-board tax increases.

"This needs to be a bold and ambitious Budget, with a credible pathway for restoring sound public finances and a convincing narrative for growth," the CBI's deputy director general John Cridland said.

Posted by Joe Martin providing business services for small businesses and the self employed. Find me at joemartin.co.uk

Tesco FD warns against VAT rise

Laurie McIlwee urges coalition to hold off raising VAT to 20% because it would dent the "fragile" economy

Written by David Jetuah and posted on Accountancy Age.

The FD of supermarket giant Tesco has called for the government to freeze VAT at 17.5% because the expected rise to 20% would damage the "fragile" economy.

Laurie McIlwee issued the warning as Tesco unveiled disappointing first-quarter results in a presentation to the City.

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"The recovery is happening but it's fragile and therefore the
balance is important," said Laurie McIlwee, Tesco's finance director.

"VAT is going to be part of the austerity package but it is a question of when
you do it. The best thing would be to wait a bit."

However, advisers have said the increase would be an obvious revenue-raising move for a government because it would generate about £12bn of revenue.

Putting VAT on food would be "nonsensical", McIlwee added.

Posted by Joe Martin providing business services for small businesses and the self employed. Find me at joemartin.co.uk

Hike VAT say firms

The MailOnline reports:

A VAT hike in the forthcoming emergency budget would be the lesser of various evils, business leaders have declared.
According to a survey by KPMG, 61pc of chief executives say if taxes have to rise, then a VAT rise would be the best option.
A National Insurance increase is the least preferred option, according to 202 executives polled for the accountancy firm by opinion Leader research.
This would be my personal too. At least it would be paid by honest tax payers as well as tax cheats!

The article continues:

Separately, the British Chambers of Commerce urged the coalition to drop plans to ring-fence health and overseas aid spending, saying these are 'unsustainable'.
It also cautioned the chancellor against rushing ahead with the abolition of tax allowances on investment in order to fund a corporation Tax cut.
This requires 'careful study,' the lobby group said.

Posted by Joe Martin providing business services for small businesses and the self employed. Find me at joemartin.co.uk