20% VAT rate from July?

News Article - 04 May 2010
Category: Regulatory

A number of industry experts expect the basic VAT rate to climb to 20% from July to bring Britain more in line with the EU, where the average is 19.6%. The rate was reduced to 15% in 2008 to encourage spending to kick start the struggling economy. It returned to the historical standard of 17.5% in January 2010.

Raising the VAT rate would increase tax take at a time when Britain's budget deficit continues to rise, and action is necessary to deal with this issue. The chance of the hike to 20% being introduced is thought to be higher if Labour - seen as less willing to cut public spending to reduce debt - are elected.

The legislation that facilitated the drop to 15% gave Parliament the power to alter the rate subsequently, which is why experts consider the increase to be likely. However it is expected that any increase would still be pushed through traditional channels such as a Commons debate and Budget announcement.

One of the biggest effects would be on commercial property. Many firms must pay VAT on property purchases and a 2.5% hike could make a considerable difference to the final cost. Businesses also face significant logistical and administrative costs; the fall to 15% was estimated to have cost UK companies £470m.

Whether the VAT rate does increase in July or whether it remains stable in the latter half of 2010, businesses must expect changes to the tax system to be implemented whether a Conservative, Labour or mixed government forms following the general election. Steps will need to be taken to tackle the budget deficit, and increasing tax take is likely to be on the Government's agenda.

The most reliable and robust way for companies to improve resilience in the face of taxation changes is by strengthening internal structure so that any new compliance regulations brought about by updated legislation trickle down to all departments as quickly as possible.

Access offers completely integrated business management software that connects all departments in real time. Regular software updates ensure compliance with new taxation legislation, helping to reduce administrative burden and freeing up resources for more essential tasks.

For more information, please call Access on 0845 345 3300.

 

Article keywords: VAT rate rise, VAT legislation, tax legislation, integrated business management software,

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