Partner Article

All quiet on the VAT front

Although VAT is now the second highest tax revenue generator in the UK, the only VAT surprise in the Chancellor’s Autumn Statement is that there was no mention of VAT at all.

In announcing that further action would be taken to increase the supply of affordable housing, it was very disappointing that the Chancellor did not take the opportunity to announce the wider application of the reduce VAT rate of 5% to repairs and maintenance of older or uninhabited dwellings.

Similarly, in declaring additional support to the retail sector through a business rates discount (particularly singling out including pubs, cafes and restaurants), the Chancellor could have applied a reduced VAT rate to supplies in these sectors, thereby creating employment opportunities by stimulating demand through lower prices.

By lowering VAT rates for these sectors the Chancellor could have increased his ‘Laffer Curve’ impact addressed elsewhere in his statement. Reduced VAT rates benefit consumers as, by reducing the price of certain essential goods, the savings for consumers that arise from any such VAT reduction will usually be higher as a proportion of income for lower income groups.

Although the Chancellor announced a number of measures relating to education, he could have announced some VAT policies that would have benefitted both students and education providers alike. By widening the scope of VAT exemption of higher education to commercial operators and affording VAT recovery status to sixth form colleges, tertiary colleges and colleges of further education, would not only have increased competition and choice for the student, but would lower the cost base for education providers who are unable to recover VAT incurred on underlying supplies.

As VAT is a European tax, every Chancellor does face limitations in what VAT measures can be addressed. However, as the UK’s VAT legislation is littered with disparities and anomalies, we did expect so much more than was announced in this Autumn Statement. Particularly as the Chancellor could have applied a VAT ‘fix to the roof when the sun is shining’.

This was posted in Bdaily's Members' News section by Baker Tilly .