TaxCorporate TaxConcern over future VAT

Concern over future VAT

Further VAT rate changes could deter sales and increase administrative costs for companies says tax expert

Businesses hoping for an extension of the 15% VAT rate beyond this year were
disappointed by last week’s Budget announcement.

But they should count themselves lucky that VAT remained static, according to
tax experts, who warn that a future hike is a real possibility.

According to Lorraine Parkin, partner of tax services – VAT at Grant
Thornton, at a time when businesses are struggling to deal with already dire
market conditions, further rate changes could deter sales and increase
administrative costs.

Parkin said Darling’s introduction of legislation to enable a temporary VAT
change for 12 months or less could ‘lead to a significant increase in the VAT
rate after the next election.’

The 2.5% cut in VAT, which expires on 31 December this year, highlighted the
administrative burden on business, and with chronic cash flow issues unlikely to
recede, further changes will undoubtedly prove an expensive – and possible
damaging – exercise.

The ability to tamper with the standard rate of VAT within such short periods
will also allow greater scope in coming years to claw back the current reduction
in tax receipts.

Based on current tax receipts, government figures show the Treasury expects
to receive around £64bn in fiscal year 2009/10. Assuming revenues remain static
in 2010/11, a six month hike in the VAT rate to 20% would net the Treasury an
estimated £5bn.

The legislative amendment has also fuelled conjecture that the chancellor
plans to temporarily increase the rate to 20% – nearer to the rate in many
European countries.

Andrew Jupp, head of tax at Tenon, said the chancellor missed an opportunity
to raise VAT to 20%, which would have added £12.5bn to government coffers. ‘The
UK boasts one of the lowest rates of VAT in Europe so raising the rate to 20%
would bring it in line with France, Austria, Hungary and Italy,’ he said.

Related Articles

Autumn Statement 2016: Higher taxes for a simplified system, say businesses

Corporate Tax Autumn Statement 2016: Higher taxes for a simplified system, say businesses

11m Stephanie Wix, Writer
'Innocent' companies will be hit by tough HMRC anti-fraud powers

Corporate Tax 'Innocent' companies will be hit by tough HMRC anti-fraud powers

11m Stephanie Wix, Writer
Simplified tax urged to unshackle start-ups to grow, finds major report

Accounting Firms Simplified tax urged to unshackle start-ups to grow, finds major report

12m Stephanie Wix, Writer
CIoT urges government to rethink VAT approach to online traders

Corporate Tax CIoT urges government to rethink VAT approach to online traders

1y Richard Crump, Writer
UK votes to leave EU – accountancy profession reacts

Accounting Firms UK votes to leave EU – accountancy profession reacts

1y Fraser Simpson, Reporter
Building company director banned for 7 years for VAT under-declaration

Corporate Tax Building company director banned for 7 years for VAT under-declaration

1y Richard Crump, Writer
Berkshire motor business VAT fraudsters sentenced

Corporate Tax Berkshire motor business VAT fraudsters sentenced

1y Richard Crump, Writer
The growth and challenges of digital sales taxes globally

Corporate Tax The growth and challenges of digital sales taxes globally

1y Editorial comment