The UK VAT rate rumour-mill ramped up a notch this week, in the wake of comments made by Baker Tilly lynchpin George Bull. He was quoted in the Financial Times as saying a standard rate increase to 20% is "possible" - not only as a way to tame a ballooning budget deficit but also "to bring the country in line with other EU member states, several of which have recently raised their VAT rates."
Even if the UK does increase the standard VAT rate to 20% it still "has one of the lowest rates of VAT in the EU," according to Bull.
As reported last November, a 2.5% standard VAT rate increase (to 20%) would raise an additional £12 billion a year for the public purse.
And levying VAT on food - which is currently exempt - albeit at a lower rate of 5%, would bring in another £3.5 billion a year.
VAT rates 2009
During the credit crunch, Chancellor Alistair Darling lowered the standard rate of VAT to 15% as a way to stimulate spending and pull the economy out of recession.
By the Summer of 2009, however, the Treasury announced the UK could no longer afford the cost of an extended "VAT holiday". Consequently, on 1st January the standard VAT rate reverted back to 17.5%.
UK VAT Rates
Many people don't realise there are actually three VAT rates:
- the standard 17.5% VAT rate on goods and services;
- the reduced 5% VAT rate on a limited range of good and services, such as domestic heating fuel and children's car seats; &
- the zero VAT rate on good and services, which only applies in certain circumstances (e.g., advertising services for charities) or to certain taxpayers (e.g., certain supplies of goods and services to disabled people).
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