The new government’s emergency budget is being announced on June 22 and the business world is expecting VAT to rise to around 20%. While this might be good news for school children (who will no longer have to learn how to calculate 17.5% of a value) it’s not so good for anyone planning on renovating their kitchen.
A 2.5% increase in VAT means that the cost of equipping a kitchen with mid-range appliances increases by about £50 while the cost of a full set of luxury appliances can rise by over £250. If you’re building your dream kitchen and have other costs to consider, you could end up adding a sizable premium to your overall costs.
There’s no way to know if VAT is definitely going to increase but if it does the only way to avoid paying the higher price on white goods is to buy before June 22. For people who don’t already have the money saved up this raises the question of whether or not buying on a credit card is going to work out cheaper than buying after the budget.
The answer to this question depends on how quickly you can pay it back and the APR of your credit card. The rest of this blog is pretty dense so I’ll give you the quick answer now; yes, it can be cheaper, but you need a low APR credit card and to make sure you pay it off really quickly.
To give you an idea I’ve done some calculations based on the assumption that VAT will rise to 20%. This first set assumes that you pay off an equal amount of the credit each month and all of the accumulated interest.
If you pay your credit card off within 1 month you can beat VAT with an APR of less than 27%.
If you pay your credit card off within 2 months you can beat VAT with an APR of less than 17%.
If you pay your credit card off within 4 months you can beat VAT with an APR of less than 10%.
This second set assumes that you pay off your debt and the interest it accumulates in one lump sum after a certain amount of time has passed.
If you pay your credit card off within 1 month you can beat VAT with an APR of less than 27%.
If you pay your credit card off within 2 months you can beat VAT with an APR of less than 12%.
If you pay your credit card off within 4 months you can beat VAT with an APR of less than 6%.
Neither of these sets of figures take into consideration any admin fees or other costs that might be incurred and are based on the assumption that VAT will rise by 2.5%.
The APRs given above will mean you pay only slightly less than a 2.5% VAT increase. In all honesty, unless you have a credit card with a significantly lower APR and pay the card off within one or two months the money you save is likely to be less than £1 in every £100 you spend.
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