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18 January 2012
Under new proposals published by the European Commission (EC) in Brussels in December 2011, it plans to cut the number of exemptions for the use of the reduced VAT rates.
Simplifications of EU VAT exemptions
The EC’s White Paper, issued on the 6 December, on the overhaul of the EU-wide VAT system, is aimed at simplifying the tax regime’s reporting burden for businesses, and cutting billions of Euro’s lost ever year to fraud. However, the EC is also looking to eliminate many reduced VAT rate exemptions in an attempt to impose a harmonised fiscal regime across all 27 member states, and help countries consolidate their financial position in the face of the current Euro crisis.
For the UK, this means its cherished zero VAT rating of food and other goods, e.g. books and newspapers, could be lost. Instead, it could be forced to raise the VAT rates on household food spend to the maximum standard VAT rate to 20%. This would result in a potential maximum cost to UK households of £553 per year.
The latest Office of National Statistics’ Family Spending report shows that the average household weekly expenditure on food and non-alcoholic drink averaged £53.20 a week. Setting the VAT rate on such expenditure to 20% would cost households £553 per year.
Poland was last month forced by the EU to raise its VAT rate on childrens’ clothing from 8% to 23%.
Richard Asquith, Head of VAT, TMF Group commented:
”Currently, the UK is the only country in the EU that does not levy the full VAT charge on all foodstuffs. The rational behind this exemption is that the less well off, who spend a larger proportion of their incomes on food, would be disproportionably hit.”
richard.asquith@tmf-group.com mobile: +44 (0)79 777 23645 tel: +44 (0)207 832 4900
About TMF Group
TMF Group helps global companies expand and invest across international borders. Its expert accountants, corporate secretarial and HR & payroll professionals in over 100 offices around the world provide outsourced compliance services. It works with over 50% of Fortune 500 and FTSE 250 businesses, and thousands of private companies. www.tmf-group.com
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