VAT rises in 2011

HOW TO BEAT THE BANK AND BUDGET

With VAT going up to 20% on January 4th 2011, now might be a good time to get moving on your new car purchase. A 2.5% increase will after all have a very real impact on the price of your next vehicle.

And if you do decide to spend now instead of later you certainly won't be alone.

A recent survey by GfK NOP Automotive suggested one in eight consumers plan to bring their new car purchase forward to beat the January increase.

HOW TO BEAT THE BANK AND BUDGET

This seems a smart move when you consider the price of an average family hatchback could rise by up to £350 if you wait until January 2011.

A VW Golf 1.4 S will go up in price by £302, a 2.0-litre Ford Galaxy by £477 and even a cheap new car like the Toyota Aygo will cost an extra £161.

Sadly, that's not the only tax hike in the pipeline. The recent coalition budget also increased the insurance premium tax, a levy on all insurance policies. This tax currently stands at 5% but will go up to 6% come January.

This is not a huge increase for the average family car owner, yet a quarter of car buyers in the medium- to high-end marketplace are considering a downgrade to something less pricey.

And you can't blame these consumer either, especially when you then factor in the showroom tax introduced by the former Chancellor Alistair Darling in his 2010 budget.

As buyacar has profiled before, the car showroom tax is a one-off payment made when you buy a new car.

The showroom tax is based on a car's CO2 emissions. Basically the lower emissions your new car produces, the less duty you will have to pay.

By way of comparison, a 2.0-litre diesel Ford Mondeo will require a one-off first-year duty payment of £425. A Skoda Superb 1.8 150bhp Tiptronic or the Kia Sorento 2.5 CRDi will require an eye-watering contribution of £750.

But the savvy buyer needn't despair. Even these new or increased taxes can be swerved if you buy a new car which has low CO2 emissions. Understanding the tax bands is key.

If you buy a car in Bands A through B you will be totally exempt from the car showroom tax. A further benefit of a Band A car (cars with emissions under 100g/km) is their permanent exemption from road tax. Secondly, these cars invariably come in low insurance bands so you'll be hard pushed to notice the 1% increase in your car insurance. Thirdly, if you buy the car before January 2011, then you'll avoid that VAT hike too.

There is certainly an opportunity to grab a cheap (and long-term cheap) car and there are several new cars available to buy now in Band A that we would recommend. These include the Toyota iQ (from £9,995) Seat Ibiza Ecomotive (from £13,080), Volkswagen Polo BlueMotion (from £14,445), Ford Focus 1.6 TDCi ECOnetic Start-Stop (from £17,345) and Toyota Auris Hybrid 89g (from £18,950).

In other words, beat the VAT by shopping smart now.

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