Why Does VAT On Cars Keep On Increasing

Since January 4th 2011, VAT increased by 2.5% bringing it to 20% and many people shopped frantically before this date to save some money. Most people put off spending until after the New Year as shopping over Christmas can be expensive though. For those who didn't manage to buy a car last year and was waiting for this current year, they will be disappointed to find that buying a new car in 2011 will mean that it costs on average around £350 more than it did in 2010.

Unfortunately if you didn't need a car last year and need one now, then there is little you can do but pay the extra few hundred pounds. The only obvious way to save money on a new car since the VAT increase is a fairly obvious one, the cheaper the car is, the less VAT you pay on it.

Some of the cheapest cars to buy this year since the VAT increase are listed below:

• Nissan Micra £9,250
• Renault Twingo £8,840
• Fiat 500 £9,665
• Peugeot 107 £6,495
• Mini £11,270

If you have a family, then the cars listed above will not be suitable and a larger car will be needed to meet the needs of a growing family. For family cars, VAT is expected to be £350 - £400 so shop around to make sure you get the most out of your money.

Any way to beat the VAT increase on cars

Unfortunately you can't unless you ordered and paid for the car before January 4th 2011 as after this date all orders placed will have to be charged the new VAT rate of 20%. However there are a few car manufacturers who are currently paying the 2.5% VAT increase in a bid to attract more buyers and not deter potential clients. It usually means there is little choice on which car to purchase but it does mean saving a few hundred pounds on a new car.

Car manufacturers that are paying for the VAT increase themselves are as follows:

• Seat
• Skoda
• Suzuki

Unfortunately these are the only 3 car manufacturers that are paying the VAT hike and not passing it on to their customers. It may all change as we move further into 2011 and car sales decline forcing car manufacturers to come up with other alternative ways to lure potential clients and help them with the cost of buying a new car.

In the mean time, it may still be worth buying a new car as many makes are offering many discounts and special offers in the hope that car buyers are not feeling the pinch when they opt to buy a new car. For example you can get up £5,500 off a new Volvo if you meet all the criteria and exchange your old car in the process.