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Warning over retail sales as VAT rises to 20%


The standard rate of Value Added Tax (VAT) has risen from 17.5% to 20%, prompting concerns over a possible decline in retail sales over the coming weeks.


According to some reports, sales could fall by around £2.2 billion in the first quarter of 2011 as consumers rein in their spending in the aftermath of this month’s tax rise.


However, figures are expected to show that spending in the January sales actually rose as shoppers rushed to beat the VAT increase.


‘We are expecting to see a very quiet period over the next few months,’ said Jane Bevis from the British Retail Consortium. The group also warned that increases in transport costs, commodity prices, business rates and national insurance would all add to the burden on businesses.


For any supplies of standard-rated goods or services that take place on or after 4 January 2011 businesses should charge VAT at the new rate of 20%.


Zero-rated supplies, such as basic foodstuffs, children's clothing and books; exempt supplies, such as education and health; and supplies subject to VAT at the reduced 5% rate, such as domestic fuel and power, are not affected by the change.


The Government predicts that the VAT increase will raise around £13 billion in additional revenue for the Treasury.