UK VAT breaks 'under European threat'

The European Council could move to end the UK’s system of multiple VAT rates.

This is according to David Wilson, from accountancy firm Baker Tilly, who notes that the European Commission has recently published a working document exploring recommendations of reform for the UK.

Earlier, as Accountancy Age reports, the Commission published a policy statement on the UK which called for “raising revenues through broadening the tax base” – a phrase that Wilson believes means raising more money through the VAT system.

The UK currently operates three rates of VAT. The Commission believes that this regime costs the public purse some £44.8 billion a year.

The Commission’s publications call for the UK to abolish its zero rate, which applies to food, children’s clothes, and equipment for the disabled.

EU rules currently prohibit any member state’s standard rate of VAT to drop below 15 per cent. The UK’s standard rate is now 20 per cent, having risen from 17.5 per cent in January 2011.

The EU publication suggests that member states may be able to introduce a rate lower than the standard rate at which to tax goods that previously attracted VAT at less than 5 per cent.

Meanwhile recent figures suggest that half of VAT filing fines are levied incorrectly, but that businesses are being discouraged from appealing because of the cost.