EC proposals to cut VAT rate for services could provide

European Commission proposals to allow reduced VAT rates for a wider range of services, could provide the UK Government with an opportunity to boost the increasingly pressurised UK labour market, according to KPMG.

 

The EC has proposed extending their recent successful pilot scheme to allow all EU member states to apply a reduced VAT rate of 5% to certain labour-intensive services, including the supply of restaurant and catering services*, hairdressing, window cleaning, building repairs and maintenance.

New law has been drafted and the European Council discussed the proposal on 4 November 2008 - the Council urged the working party responsible, which includes a UK representative, to agree wording so the Council can approve the law by the end of 2008. The UK would then have the option of introducing new reduced VAT rates for a range of services.

With current UK VAT rates at 17.5%, labour intensive businesses would benefit from an immediate 12.5% boost to their bottom line. A reduction could particularly benefit the restaurant and catering sector, who are already struggling with increased food price rises and reduced demand.

Amanda Tickel, Tax Partner at KPMG commented:
"Once approved, these changes present a targeted opportunity for the government to support those working in the labour-intensive services outlined. These proposals are backed by the European Commission and other Member States, so it is within the UK's power to help drive them through.

"Labour intensive businesses looking to cut costs, would achieve the equivalent of a 12.5% cost reduction, if these reduced rates are adopted. These changes could make the difference between a businesses survival or failure as the downturn bites.”


Industries 18 November 2008


-ENDS-


Further information:
Claire Le Masurier
PR Manager for Information, Communication and Entertainment KPMG LLP
(h) 020 7694 8639
(m) 07795 074 360 


Notes to editors:
*The proposal relating to the supply of restaurant and catering services excludes alcoholic beverages. 


About KPMG:
KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. We operate in 144 countries and have more than 104,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International, a Swiss cooperative. KPMG International provides no client services.
KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative.


Back