TAX NEWS - June 2010

UK Tax: Possible VAT increase

There continues to be speculation that the UK Emergency Budget will include an announcement of a VAT rate increase. In anticipation that a long run-in period is unlikely, it is advisable that businesses understand the ramifications of a VAT rate increase and are prepared for it.

In terms of the options the Government has, the most common suggestion is that the standard rate of VAT in the UK will be increased to 20%. This increase could be introduced in two instalments as some have suggested. It is worth noting that in 1991 businesses received thirteen days notice of the increase in rate. In addition, or alternatively, the 5% rate (principally on fuel and power) could be increased or there could be changes to the items which are currently zero rated.

It will be critical for businesses to manage the impact of changes to their business systems and pricing of goods on display and will need to ensure adequate resource is available to address these issues. It is important that businesses can demonstrate having taken proper care to get the UK VAT accounting correct so as to protect against possible penalties. Any anti avoidance legislation that accompanies the changes will need to be considered in full in order to understand whether even routine transactions are impacted.