Children’s goods and charities face VAT threat

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Peter Jenkins, global head of indirect tax at Ernst & Young, said the UK veto would have to be used, to protect such items as children’s clothes and footwear and goods donated and sold in charity shops.

Currently other member countries in the EU charge a reduced rate of VAT on these products. But Fritz Bolkenstein, European commissioner responsible for tax, claims that the zero rates in the UK and Ireland were a ‘clear distortion of the market’ with benefits not being passed on to consumers, while prices remain higher than the rest of Europe.

The European Commission also plans to introduce reduced VAT rates for restaurants, the supply of gas and electricity, cut flowers and plants as well as extend the present reduced rate for housing.

The proposals will be discussed in September and must be agreed to by all European finance ministers, meaning Gordon Brown will have to work hard to protect UK zero-rated products.

Other zero-rated product categories under threat include alterations of listed buildings, protective boots, helmets for industrial use and motor cycle helmets, caravans and houseboats, as well as many handicapped and charity exemptions.

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