VAT and Tax increases start to Bite

Well another tax rise came into force yesterday. Everyone seems to have different views about the Vat increase from 17.5% to 20%. George Osborne announced it was necessary the fairest way of increasing revenue to reduce the budget deficit. Labour has a different view, but they seem unable to say exactly what they would do in this situation.

Whether people think the tax increase is fair or not depends on each person’s individual situation.

Whilst the poorest will probably pay a greater percentage of their income towards VAT. High earners will pay more in actual monetary amounts.

There are concerns about the effect of the increase on the UK economy and whether this will lead to a slowdown in consumer spending. Some economists fear inflation increases and higher interest rates.

One thing is clear the size and scale of the budget deficit had to be addressed. The previous government did not anticipate the level of debt and seem oblivious to the fact that they caused the problem in the first place.

With an increase in National insurance contributions later this year, it could be gloomy for many people.

There is however some good news. Many large retailers are deferring the VAT increase until later in the year.  If consumer spending does reduce slightly, retailers might be willing to offer discounts to get consumers spending.

Utility services are offering discounts to go paperless and if you are after a real bargain then try Groupon- the latest internet discount site. This site lets local businesses sell discounted products in a bid to increase their sales.

Whilst the recent tax increases are unpleasant the personal allowance will increase in April 2011 to offset some of the tax increases.

Using pensions and investments such as Isa’s can help reduce your income tax liability. It is also possible to reduce the amount of capital gains tax and inheritance tax you might pay using careful tax planning strategies.

The outlook for stock market related investments looks positive with some fund managers predicting a 10% increase in the FTSE 100 over the next twelve months.

Whilst it would be great to see this level of return, investors should still take a diversified approach to investing and not put “all their eggs in one basket”.

Whether you are looking for tax planning advice, pension or investment advice it’s better to seek help now rather than waiting. Save Tax seek advice.