A report has recently been published by Synovate and KPMG in conjunction with the Retail Think Tank expressing the opinion that the UK retail sector will not be affected unduly by the VAT rise in January 2011. The government announced in the 2010 Budget that VAT will increase to 20 percent from 4th January 2011. Tim Denison, who is from Synovate, believes that the increase in January could be the first of many possible changes.

It is possible that the government will introduce some of the practices already being used by other European countries. It is thought that the Chancellor will look again at VAT over the course of the next two budgets, maybe with further increases. Another possibility is the introduction of VAT to products which we currently purchase free of VAT.

The report carried out by Synovate and KPMG revealed that the retail sector may not suffer excessively, especially as Christmas and the New Year will introduce sales and promotions, which is when sales traditionally see a boost. It may be a different story after the start of the New Year, as increased VAT has to be absorbed either by the retailer or passed on to the customer by raising prices.

The VAT increase itself will probably not inflict too much damage, but if interest rates rise in conjunction with the rate of inflation, the economy could be seriously affected. The government is forecasting that inflation will be low and the UK will be in recovery by January 2011.

The whole country, including umbrella company contractors, is waiting to see just what will happen to the economy, with so many changes in a short period of time. Changes to regulations such as IR35 legislation are desired to bring about positive improvements for contractors, whilst the higher rates of tax for earners look as though they will remain unchanged.