VAT Rate Change

The Chancellor announced in his Pre-Budget Report that, on the 1st of December, the standard VAT rate will reduce from 17.5% to 15% until the end of next year. For consumers, this means that the providers of any standard rate VAT products and services should charge the new rate of VAT from this date. Only standard-rated sales are affected. There are no changes to sales that are zero-rated or reduced-rated for VAT. Similarly, there are no changes to the VAT exemptions. There are already debates amongst tax experts as to whether the VAT rate change will have much of an impact in boosting a struggling economoy, however, for businesses and large consumer purchases, there will be a noticable difference once the VAT rate change comes into force. The Government is already planning to include anti-forestalling legislation into the Finance Bill 2009 in order to ensure that businesses do not use artificial arrangements to reduce the VAT rate on goods or services to be provided after the rate reverts to 17.5% where there is no current economic activity. Genuine commercial transactions should not be affected. Details are in the written statement to be made by the Financial Secretary to the Treasury on 25 November 2008. This statement was also made in the House of Lords by the Financial Services Secretary to the Treasury, Lord Myners. We have provided a range of information which covers straightforward and technical issues for businesses, and also likely questions from consumers.