VAT Cut Benefits Motor Companies and Retailers

By Ben Aulakh

In the midst of overwhelming criticism of the VAT rate change from many business quarters, some firms have reported that they benefited from last year’s 2.5 per cent reduction.

Cars and expensive “big ticket” items such as televisions and furniture saw a rise in sales in the run up to Christmas, before VAT returned to 17.5 per cent on January 1st.

A spokesperson for the Retail Motor Industry Federation said, “The motor industry benefited particularly in the last few months of 2009.

“This came as people hurried to gain the extra savings and buy cars before the VAT increase in January.”

Sales of new cars gained the most from the VAT cut as the positive effects of the VAT reduction dovetailed with the introduction of the car scrappage scheme.

Hannah Dobson from financial services firm Smith Williamson also saw the automobile sector benefit from the VAT reduction.

“Towards the end of 2009 a number of businesses that sell more expensive items noted a minor increase in demand.

“One such area was the purchase of cars, VAT at 15 per cent rather than 17.5 per cent on the price of a new car is a significant difference in price to customers, hence the rush that there was to buy.”

John Lamb from the Birmingham Chamber of Commerce states that some businesses in the city did get something from the 2.5 per cent reduction.

“The reduction plus low interest rates does seem to have encouraged people to shop in the run up to Christmas, firms reported increased sales on expensive items.

“Retail probably benefited most from the cut, this would have contributed to increased sales over the crucial festive trading period, before January 1st.”