Colin Laidlaw CTA AIIT
- VAT Tax Director - Technical Specialist
- +44 (0)330 124 1399
- Email Colin[email protected]
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There has been speculation over the weekend on the possibility of the Chancellor, Rishi Sunak, cutting the VAT rate in July to boost the economy. This may seem a bit of an oxymoron in that VAT is the second biggest income generator for the Treasury and a cut in VAT will decrease our revenue take, which, given the cost to the economy of the pandemic measures may seem detrimental.
Also, one has to question whether it will actually make a difference. Is the reason we are not spending money (in the pubs for example) is because of the prices? How many people, like me, will be straight into the pubs and restaurants once we are permitted (and they open)? A VAT rate change will not necessarily change this.
However, there is no doubt that some businesses could do with a boost and it may be that reducing the VAT rate will make a difference. But, can we actually change the VAT rate?
VAT is currently at 20% on most items (the standard rate). It is worth reminding ourselves that the UK is still currently bound by EU rules on VAT as we are still in a transitional period despite having technically left the EU. What does this mean for VAT rate changes?
So, yes, whilst we remain part of the EU for VAT purposes, the UK can apply some changes to the VAT rate but it may be limited. Once we leave the EU completely we can effectively do what we want but, at the end of the day, the books need to be balanced and any change is only likely to be temporary.
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