New VAT rates row erupts
Sometimes it takes a mistake to open the floodgates. An article in last week's Accountancy Age prompted enormous interest when it mistakenly reported that a reduced VAT rates on specific services were coming to the UK.
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They are, in fact, only being extended for the European Union states that took them up as part of an EU tax experiment launched in 1999. British businesses will not be able to take advantage of the low rates at all.
But this week accountants slammed the government for keeping quiet over the European Commission’s proposals for lower VAT rates on labour intensive services.
Several EU member states have opted to adopt the schemes which will take the pressure off industries such as hairdressing, goods repairs, window cleaning and domestic repairs and renovation.
But UK accountants complained they were never informed of the low rates.
Marilyn Jeffcoat, MD of Edinburgh-based accountancy firm DM Vaughan & Co, said: ‘We’ve always been told that VAT is, in effect, a European tax and we have to follow what everybody else does. Then, all of a sudden, we discover there is this whole range of services that all small businesses could be eligible for.
She added a VAT reduction is ‘almost essential’ for her clients.
Peter Mitchell, chairman of the Small Practitioners Association, said he never knew that the reduced rates were ever available. ‘Obviously it doesn’t suit Gordon Brown to reduce VAT rates. Maybe it would have been more helpful if we had some sort of general announcement that this was an option.’
Adrian Dawson, financial controller and company secretary of Advanced Hair Studios, which owns a number of hair salons throughout the UK and Europe, said if the regulation did exist in the UK then his company would have saved around £125,000 through 2000 to 2002.
Peter McRobert of the Federation of Small Business said the government should have joined the scheme. ‘I don’t see why the government doesn’t relieve as best it can everybody operating around the registration threshold.
It’s important for businesses to get off the ground and develop.’
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A Customs & Excise spokeswoman said the UK did not adopt the ‘experimental’ reduced rate of VAT, because the government saw better ways to achieve its aim, of reducing unemployment, such as the New Deal scheme. She said that the UK missed the 1999 deadline to join the experiment and could no longer do so.