VAT - business will carry burden of change, says KPMG

Winners and losers from 2.5% reduction

 

Commenting on today's announcement that the standard rate of VAT is to reduce to 15% for 13 months from 1 December 08, Gary Harley, Indirect Tax Partner at KPMG in the UK, comments: "On the face of it, the proposals look good for the consumer and certain organisations, but overall business will carry much of the burden of dealing with this change in rates.” "This is good news for businesses that can't recover VAT such as universities, charities, housing associations, nursing homes, banks and insurance companies as it represents an overall reduction in costs.

"Also, this change will mean that the standard rate of VAT in the UK is now at the low end of the VAT rate spectrum across the EU, which may well make the UK a more attractive place to do business.

"For businesses generally, they will have to bear two sets of systems changes, when the rate goes down and then returns to 17.5% in January 2010. These changes are expensive, time consuming and are coming at most businesses' busiest time of year.

"Retailers will need to decide how to price their products, with the rate reduction taking effect in six days time.

"Consumers will no doubt expect them to pass on these cuts, but VAT is only one of the many complex factors which determine the price of goods. Should the retailer decide to cut the price now, will they easily will be able to increase the price in 13 months time when the rate returns to 17.5%?


Tax 24 November 2008


-ENDS- 


Further information:
KPMG PBR Hotline: 020 694 8773
www.kpmg.co.uk/pbr

Margot Cowhig, Tax PR Manager, KPMG in the UK
Media hotline: 020 7694 8773
Mobile: 07920 274 856
Mail: margot.cowhig@kpmg.co.uk


Notes to editors:
Budget proposals and other tax changes are summarised in this document. The proposals may, however, be amended significantly before enactment. The content of this communication is intended to provide a general guide to the subject matter and should not be regarded as a basis for ascertaining liability to tax or determining investment strategy in specific circumstances. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation.


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