UK VAT rate rises from 17.5% to 20%

The top rate of VAT has risen from 17.5% to 20% - as the British government looks to boost tax revenues to cut the UK's debt levels.

4 January 2011, 12:00am

1 min read

Reacting to the VAT hike, business groups have warned that retailers will be hit by the increase, while opponents of the rise have said the poorest will be hit hardest.

The government defended the rise by affirming it is necessary to help bring down the UK's high budget deficit.

[Food, children's clothing, newspapers and magazines are not subject to VAT]

But research by the Centre for Retail Research and online shopping group Kelkoo has suggested that retail sales will fall by about €2.55 billion (£2.2 billon) in the first three months of the year as a result of the rise in VAT.

The British Retail Consortium (BRC) has also warned that the rise, announced in the June budget, may have squeezed the traditional January sales period into a concentrated burst around the New Year.

More than seven out of 10 retailers polled by the BRC thought that their customers would bring forward purchases to beat the VAT increase.