For years now the European Union severely limited the ability of national governments to reduce VAT rates – which fact seemed to have escaped Tony Blair who promised cuts during the 1997 General Election though he “found out” later. Good excuse not to keep your manifesto promises eh?

However following a meeting earlier this month the European Commission (EC) have brought forward proposals to allow reduced value-added tax (VAT) rates for a wider range of services and this could provide the United Kingdom government with an opportunity to boost the increasingly pressurised economy.

The EC has proposed extending their recent successful pilot scheme to allow all European Union member states to apply a reduced VAT rate of 5% to certain labour-intensive services, including the supply of restaurant and catering services, hairdressing, window cleaning, building repairs and maintenance.

A new law has been drafted and the European Council is hoping all parties will agree the final draft so that it can approve the law by the end of 2008. The UK would then have the option of introducing new reduced VAT rates for a range of services.

With current UK VAT rates at 17.5%, labour intensive businesses would benefit from an immediate 12.5% boost to their bottom line if these reduced rates are adopted.

These changes could make the difference between a business surviving or failing as the downturn bites.

Also See:

• Are You Ready for the VAT Rate Change?
• New Rules for Correcting an Error on Your VAT Return
• Prepare for VAT to Rise to 20%
• Isle of Man Chief Minister Speaks Out on VAT Debacle
• Pouring Cash Down the Toilet – £18 Billion Shortfall in UK VAT During 2006
• Taxman Faces Writs for VAT Errors
• What the Changes in VAT Mean For You
• VAT Invoicing Requirements – Fines if You Don’t Comply
• HMRC Advisory Fuel Rates

Category: Taxation