Canny spending can beat VAT rise

This week's VAT hike came at a bad time for households seeing fuel duty rise and wages stagnate, but a savvy approach to paying for goods and services can soften the blow.

The increase in VAT from 17.5 to 20 per cent came into force on Tuesday amid claims that the average family in Scotland will see annual costs rise by 600 as a result.

The SNP estimated that Scottish households will contribute 1.4 billion of the 13bn that the increase will generate for the UK government.

The change will add 33 a year to the average supermarket trip alone, according to mysupermarket.com, because while most food is exempt, items such as toothpaste, cleaning products and many snacks carry VAT.

However there are several ways to offset the rise and keep your spending down - here are a few:

1 Cashback websites

These make the unlikely sounding premise of getting paid to shop become a reality. Cashback websites carry links to hundreds of retailers, restaurants, travel companies and financial services providers, who pay a referral fee each time a customer clicks through from the cashback website.

Some of that fee is passed to the consumer, who gets cashback of anything between 1 and 25 per cent.

Once you sign up - and in some cases pay a nominal membership fee - try to get into the habit, when shopping online, of checking if the site has a link to the company you're buying the product or service from.

Just clicking through from the cashback site, instead of going direct to the provider, can, over time, pay dividends, particularly if you're paying for holidays or similarly costly outgoings.

Gavin Littlejohn, chief executive of Moneydashboard.com, said: "Sites like quidco.com and topcashback.co.uk are good places to find cashback deals where you get money back as you shop. For example, through Quidco.com you can get 5 per cent cashback on all BA long haul flight and hotel packages or 50 per cent off at Hilton hotels plus 9 per cent cashback with Lastminute.com."

How much you make depends on the amount you spend and how often you use a cashback site, but don't let it lure you into paying for things you don't need.

2 Voucher codes

These have soared in popularity over the past two years, providing both instant discounts for online purchases and printable vouchers that can be used in stores, restaurants and other outlets.

Most comparison sites now allow users to search for the best voucher deals, including Moneysupermarket.com, which recently claimed that regular voucher users can save more than 50 a month.

Voucher code apps on iPhones offer a new way of tracking down discounts, giving shoppers details of any discounts in their vicinity at a particular time.

Mark Pearson, chairman of MyVoucherCodes.co.uk, explained: "The MyVoucherCodes mobile application, which is available to download free from the iPhone app store, uses GPS to help shoppers track discounts and codes that can be used in their local vicinity, when they are out and about on their local high street."

However Pearson warned that with under-pressure retailers using promotions to attract more custom, many deals are not as good as they initially appear and can be misleading.

3 Sales

Several stores are holding off on increasing the VAT rate on most or all products for the time being, with the higher rate being implemented gradually over the coming month.

Howard Archer, chief UK and European economist at IHS Global Insight, said: "Lots of shops still have unsold Christmas stock which they will want to sell off and some will use it as a marketing ploy." Kelkoo, the shopping comparison website, estimates that Britons will spend around 22.5bn in the sales this month, although it predicts consumers will reduce their spending for the rest of the year.

But Littlejohn cautioned against impulse buying during the sales.

"It makes much more financial sense to wait until the right item comes up at the right price at the right time. That keeps money in the bank longer and gives consumers a chance to get to know the market and spot what is and isn't a good deal."

Shopping online - or at least using websites such as Kelkoo.co.uk or pricerunner.co.uk to compare high street prices - can still produce significant savings. Moneysupermarket.com estimates that you can slash your shopping bill by up to a fifth by going online, with expensive items, such as TVs, up to a third cheaper online.

Also bear in mind that items sold at charity events and in charity shops are not subject to VAT, offering a good way to both save money and donate to a good cause.

4 Cashback credit cards

If you clear your credit card balance each month you could consider using a cashback credit card, which offers instant cash to customers using the card to buy certain products and services.

Both Barclaycard and Egg launched cashback cards last year. Under the Egg deal, borrowers can get a penny back in cash, up to a maximum of 200 a year, for every pound spent. However the 1 a month fee means you have to spend more than 100 a month on the card to profit.

Similarly, Capital One's World Mastercard offers 1 per cent cashback but has an annual fee of 18, reduced to 8 by a 10 "bonus credit" each January. The American Express Platinum Cashback pays 5 per cent on spending up to 2,000 in the first three months, falling back to a maximum of 1.25 per cent thereafter.

The numbers don't seem much, but if you use your card regularly and don't let the cashback tail wag the spending dog, healthy savings are possible over time. However the cards should only be used if you clear your balance each month, as the interest rates are higher than on the average credit card.

5 Supermarket savings

The savings offered by the big supermarkets can be both substantial and deceptive, thanks to the price manipulation techniques they favour. But if you do your grocery shopping online, Mysupermarket.com, a grocery price comparison website, allows you to check exactly how much you have to pay for the items you need at the different big name supermarkets.

It allows users to compare the prices at Asda, Tesco, Sainsbury's and Ocada (Waitrose's online brand) and claims shoppers typically chop a fifth off a 100 weekly shop by picking the best value products at the various shops.

The VAT guide

Standard rate: 20 per cent - charged on most goods and services

Reduced rate: 5 per cent - charged on goods such as children's car seats and household heating fuel

Zero rate: Applies to most foodstuffs, insurance, books, newspapers and magazines, children's clothing, equipment for people with disabilities, some services from doctors and dentists and certain types of education and training

Insurance premium tax:standard rate up from 5 to 6 per cent, higher rate up from 17.5 to 20 per cent. Relates to policies including motor, travel, home and medical insurance