The Treasury is considering a temporary cut to the standard rate of VAT and potentially reduced rates to support specific sectors (for example, tourism) according to the Financial Times (21 June), noting that any such cuts might accompany changes to social-distancing guidelines, with a move to ‘one metre plus’ from 4 July.
The FT also notes that the Chancellor is ‘drawing up plans for deferred tax rises and cuts to public spending’ for his autumn Budget, in order to help pay for a ‘summer of stimulus’.
The Guardian (‘What can Rishi Sunak do to boost the economy?’, 23 June) reports various calls from business to cut VAT, reduce employer NIC (or adjust the thresholds) and further changes to business rates.
Commenting on the reports, Giles Salmond, head of indirect taxes at Eversheds Sutherland, said: ‘It is quite probable that the chancellor will cut the rate of VAT for a limited period to stimulate consumer demand, as the then Labour chancellor did in the wake of the financial crisis in 2008. This has already happened in Germany from 1 July to the end of the year and it’s quite likely that other EU member states will follow.’
Jamie Ratcliffe, EY’s head of indirect tax, said that: ‘A key challenge is how the measures are implemented in practice, particularly ensuring that the tax system is not made too complicated or expensive. In 2008, we saw businesses struggle with challenges around the timing of implementation. For example, retailers were not able to reprice their products overnight and systems changes can be time consuming and be costly.
‘Beyond the broad-based change, the chancellor could target sectors that are specifically suffering under Covid-19 and would respond to a fiscal stimulus’, Ratcliffe said. ‘Here, the chancellor’s options remain constrained by the EU rules until the end of the year but, within those restrictions, the chancellor could choose to apply a reduced rate (minimum of 5%) to specified sectors including hospitality and leisure, as already is in place in other EU countries.
‘Either way, whatever option the chancellor chooses, it will be important that it is delivered in a manner that the benefit to customers and businesses outweighs to cost of implementation.’
The Treasury is considering a temporary cut to the standard rate of VAT and potentially reduced rates to support specific sectors (for example, tourism) according to the Financial Times (21 June), noting that any such cuts might accompany changes to social-distancing guidelines, with a move to ‘one metre plus’ from 4 July.
The FT also notes that the Chancellor is ‘drawing up plans for deferred tax rises and cuts to public spending’ for his autumn Budget, in order to help pay for a ‘summer of stimulus’.
The Guardian (‘What can Rishi Sunak do to boost the economy?’, 23 June) reports various calls from business to cut VAT, reduce employer NIC (or adjust the thresholds) and further changes to business rates.
Commenting on the reports, Giles Salmond, head of indirect taxes at Eversheds Sutherland, said: ‘It is quite probable that the chancellor will cut the rate of VAT for a limited period to stimulate consumer demand, as the then Labour chancellor did in the wake of the financial crisis in 2008. This has already happened in Germany from 1 July to the end of the year and it’s quite likely that other EU member states will follow.’
Jamie Ratcliffe, EY’s head of indirect tax, said that: ‘A key challenge is how the measures are implemented in practice, particularly ensuring that the tax system is not made too complicated or expensive. In 2008, we saw businesses struggle with challenges around the timing of implementation. For example, retailers were not able to reprice their products overnight and systems changes can be time consuming and be costly.
‘Beyond the broad-based change, the chancellor could target sectors that are specifically suffering under Covid-19 and would respond to a fiscal stimulus’, Ratcliffe said. ‘Here, the chancellor’s options remain constrained by the EU rules until the end of the year but, within those restrictions, the chancellor could choose to apply a reduced rate (minimum of 5%) to specified sectors including hospitality and leisure, as already is in place in other EU countries.
‘Either way, whatever option the chancellor chooses, it will be important that it is delivered in a manner that the benefit to customers and businesses outweighs to cost of implementation.’
