Extension of 15% rate beyond 1 January 2010

Businesses and particularly retailers really struggled with the impact of making systems changes in the run up to last Christmas.  To avoid similar problems there has been some lobbying in the sector for the date for reversion to 17.5% to be pushed back so that systems changes do not interfere with the vital Christmas and New Year sales period.
 
We speculate that the government will listen to the views of businesses and announce that the 15% rate will continue to apply into 2010.

Publication of the 'VAT package' measures

The 'VAT package' is the collective name for a number of measures introduced into European legislation last year.  The measures must be implemented into UK domestic legislation and take effect from 1 January 2010.
 
In essence, the fundamental change contained within the VAT package is the change to the default place of taxation for VAT purposes.  Currently, the default rule is that VAT is due, on a business to business supply, in the place where the supplier is established.  This will change from 1 January 2010 so that VAT is due in the place where the recipient is established.  There are also a number of changes to the place of taxation of certain services, such as cultural, entertainment and education services as well as intermediary services and hire of transport.  Fundamental changes to the taxation of telecommunications and electronically-supplied services will have effect from 1 January 2015.
 
HMRC invited responses to its draft legislation earlier this year and it is hoped that the views of businesses were taken into consideration when formulating the final legislative provisions, which are likely to be announced at this Budget.

Addition of certain goods and services to the list of items subject to VAT at 5%

Agreement was recently reached between all 27 EU Member States on extending the reduced rate of VAT to a number of additional goods and services.

In the UK, the reduced rate of 5% currently applies to, among other things, the supply of domestic fuel and power, the installation of energy-saving materials, children's car seats and sanitary and contraceptive products.

Following agreement by the European Council, the UK will be able to apply the 5% rate to the following extra goods and services on a permanent basis:

• audio
• books as well as books supplied on CD-ROMs,
• restaurant meals,
• hairdressing,
• domestic cleaning and window-cleaning,
• minor repair work (e.g. bicycles, clothes, shoes and household linen) and
• domestic care services such as home help and care of the young, elderly, sick or disabled.
• renovation
• and repair work to dwellings.

It is doubtful that the UK will allow all these goods and services to be taxed at the reduced rate, particularly given that the standard rate of VAT was decreased by 2.5% only a few months ago.  However, it is likely that the UK will agree that audio books and the renovation and repair of dwellings should be added to the 5% list, the latter in an attempt to boost the construction industry.