F&I Management & Training

From the start of 2011, the standard rate of Value Added Tax rises from 17.5% to 20%. This follows the previous Government's 'stimulus' measure of having dropped the rate temporarily to 15%. Commentators suggest that a 2.5% reduction in VAT had only a minimal effect in stimulating the economy, mainly due to many retail outlets not passing on all, or even any of the cut. Now, these same pundits are lining up to predict dire consequences for high street sales from raising what was once considered to be a tax on luxury goods.

Surely, a good proportion of those same retail outlets that did not pass on the cut in VAT might now choose to not pass on the full rise in VAT? Accordingly, it would appear likely that while there will be some dampening of retail sales due to the rise; this will be countered by modest economic growth in 2011. Yet, for individual retail sectors the consequences of a rise in VAT will be felt. High ticket price items will undoubtedly be affected over the first few months of the New Year until consumer confidence hopefully recovers.

In the commercial vehicle world, where VAT is almost universally recoverable, the effect of such rises or falls is far more muted; but if high street sales were to stutter or specific industries take the hit, then any fleet servicing them would suffer. Some dealers might then encounter localised patches of weakness and temporarily slower sales periods due to VAT rising to 20%.