European Commission proposals to allow VAT cuts on labour intensive and locally-provided services have been welcomed by the UK’s Federation of Small Businesses (FSB), which called on the UK to support and implement the tax cuts.
The list of areas under which national governments could apply for reduced rates now includes:
- The housing sector – supply and construction of all housing (including renovation, maintenance and cleaning);
- Minor repair of tangible movable goods, including bikes but excluding other means of transport. Examples include shoes, clothes, computers, watches;
- Cleaning and maintenance services of all these goods and, in this case, other means of transports are included;
- Domestic care services (e.g. home help and care of the young, elderly, sick or disabled);
- All personal care services (including hairdressing, beauty services);
- Gardening services;
The FSB has called for the British government to seek a less rigid application of VAT rules to enable more flexibility in reducing sales tax. It has also insisted that the UK’s historic exemptions – in place since EU accession – remain.
Sue Cave, FSB Cornwall’s Vice Chairman and Financial Affairs Spokesperson said:
“With the building industry languishing and the tourism sector reporting a downturn, help for both sectors here in Cornwall is sorely needed, and any help would have a knock on effect to many other businesses. However whether the UK will take the opportunity to reconsider its VAT regime to encourage business across the board is open to question.”
Tina Sommer, EU and international affairs chairman, said:
“As the credit crunch bites, some of the first luxuries to go will be home improvements, eating out and a trip to the hairdressers, so local businesses in these areas will welcome this move. The British government must take advantage of these proposals to ensure our high street can survive the economic downturn.
“National governments should be given more control over how they use VAT to stimulate demand, so long as there are not drastic consequences for the Single Market.
“The UK has been allowed to exclude certain items, such as newspapers and children’s clothing, from VAT altogether, and this historic exemption must continue.”
Notes to editors
In 1999, the Commission began a three year experiment to see whether reduced rates of VAT in certain sectors would have a positive impact on job creation and combating the black economy. National governments could submit to reduce VAT to not less than five percent in two labour-intensive areas. This experiment has been extended several times, but now the Commission has suggested formalising the arrangement to allow national governments more flexibility in applying reduced rates to stimulate the economy. More information can be found here:
The FSB is Britain’s biggest business organisation with over 215,000 members. It exists to protect and promote the interests of the self-employed, and all those who run their own business. More information is available at www.fsb.org.uk.