budget 2016

Budget 2016: Chancellor’s VAT lifeline!

Today, the European Union will announce the repatriation to member states of the setting of in-country Value Added Tax (VAT) rates.

On the day of the 2016 Budget, the Chancellor may seize on this announcement as giving him, in due course, the ability to flex the VAT regime, perhaps dealing with the so called ‘Tampon Tax’ as well as presenting this as a way in which working with the EU, the UK can effect change and ensure the UK’s sovereignty on tax matters can be upheld.

Jonathan Riley, Head of Tax at Grant Thornton UK LLP, commented: “The European Commission is also set to announce its Action Plan on the future of Valued Added Tax in the EU. The plan will look at the future of VAT in the EU and is understood to cover, amongst other things, a plan to allow Member States greater autonomy and flexibility over the setting of local VAT rates.  There have been calls in previous years for the Chancellor to reduce VAT rates on various goods and services but, up until now, his hands have been tied by the EU's centralised VAT rules.”

Karen Robb, VAT Partner at Grant Thornton UK LLP, added: “If the planned return of rate-setting powers to individual Member States is fully implemented, he will be free to set VAT rates in the UK.”

Riley concluded: “One of the most often heard complaints about the UK's membership of the European Union is that it is Brussels that sets the rules. Whether that's in relation to competition law or taxation, the complaint is that Member State's sovereignty is somehow threatened because of the inability to set local rules. With the EU referendum looming, the Commission's announcement must be good news both politically and economically for the Chancellor who, free from EU shackles will now be in a position to pacify certain UK pressure groups and set his own  VAT agenda.”