EC proposal aims to help smaller businesses

Sep 01, 2008

THE European Commission published a proposal in July
that will allow the UK, and all other 26 member states of the European Union, to apply the five per cent VAT rate to a number of locally-supplied, labour-intensive services. This formalises and updates earlier provisions which are due to expire in 2010.

The EC has said that there is sufficient evidence that reducing the VAT due on these services will help efforts to improve the business environment for small and medium-sized enterprises. This is because the services affected are mainly supplied to the immediate local community.

Under the EC’s proposals, businesses supplying the following services would benefit:

Restaurant and catering (excluding alcohol);
Gardening and landscaping;
Cleaning:
Minor repairs
Hairdressing and personal grooming services.

Instead of charging 17.5pc VAT on these services, suppliers would need only charge 5pc VAT. The potential decrease in price could attract customers back into regularly using these services, which some may currently regard as non-essential ‘luxuries’.

In addition, the EC proposes applying the 5cp VAT rate to the renovation, repair and maintenance of houses. This will be of huge benefit to individuals who need essential repair works carried out but were deterred by the likely cost.

Consumers could also benefit from the reduced rate of VAT on babies’ nappies and media containing the same material as printed books – audio books, CDs and CD-ROMs, for example.

The downside to the proposal is that the measures will not come into force until January 1 2011. Moreover, the measures are optional and the UK and all other member states are under no obligation to reduce the VAT due on those goods and services.

The UK already taxes a number of goods and services at the zero or 5pc rate and may be reluctant to increase this list, a move that would not impress SMEs already struggling in a difficult market.

For more information or assistance on VAT matters, telephone 01908 687800, e-mail mail tony.jaras@bakertilly.co.uk or visit www.bakertilly.co.uk

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