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VAT post-Brexit part I: Introduction

1st Aug 2016
VAT Consultant vatadvice.org
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In the first of a trilogy of columns assessing the implications of Brexit for VAT, Les Howard urges politicians to be cautious about making too many changes too quickly.

VAT was an issue mentioned in the referendum debate. Now we have made our decision, we have an opportunity to review VAT legislation, which will, in principle, be free of EU interference.

I suspect we will want to retain some similarity in principle to the principal VAT directive (PVD), for the benefit primarily of multi-national companies. Such businesses need to have some confidence that there will be similar indirect taxation rules in the UK and the EU. A widely differing VAT system would increase compliance costs for multinationals, which would deter inward investment into the UK.

The VAT Act 1994 and the VAT Regulations 1995 are in need of re-writing. These key pieces of legislation are full of cut-and-paste amendments, and urgently need updating.

One specific issue raised in the referendum campaign was the VAT rate for domestic fuel and power. This is currently 5%, and some suggested that it should be reduced to 0%.

According to UKpower, the average annual cost for a medium-sized house is £1,066. This will provide an annual saving of £50.76 pa, or less than £1 per week. The real issue was of course not the saving, but the principle which will allow the UK the right to apply the reduced and zero rates.

Personally I would re-introduce the reduced rate for energy saving materials for domestic properties and charities.

However, we must be cautious about too many give-aways. Recent general election campaigns have been cursed with such ‘auctions’, with each party offering to cut one tax or another in order to gain power, with little thought to the wider economic impact of such changes.

This has contributed to our present national financial predicament. VAT changes, along with other economic changes, are usually best kept from politicians!

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