VAT rise is the necessary evil to fill the spending
deficit
Today's announcement that the standard rate of VAT will rise
from 17.5% to 20% on 4 January 2011 is the inevitable news that we
had all been waiting for but it will not be welcomed by consumers
or businesses, says leading business and financial advisers Grant
Thornton.
"It was an expected move and, providing an additional £13bn a
year, was an obvious revenue raiser for the Treasury which will go
some way to filling the vast spending deficit. Compared to the EU
we have enjoyed a relatively low rate of VAT but this rise could
add further pressure to an inflation rate that is already higher
than the Government would like," says Lorraine Parkin, Head of VAT
at Grant Thornton.
"The rate change will of course create administrative burdens
for businesses as this will be the third VAT change in just over
two years, although the Chancellor has helped retailers by keeping
the rate down for six months, encouraging spending in the run up to
Christmas and the first days of the January sales.
"Although the Chancellor was at pains to say that the tax burden
will fall on the rich, this increase will hit those on average
incomes and below proportionately harder than higher incomes. Our
shopping basket demonstrates the effect on an average monthly
spend. However, with the income tax personal allowance increasing
by £1,000 the Chancellor has delivered some good news to lower
earners and indeed his liberal democrat colleagues.
"Businesses will have some concerns about the administrative
costs of having to adapt to another rate change. Those that cannot
recover all of the VAT that they incur will be hit hardest as the
increase will represent a real increase in their operating costs.
Even those that can fully recover the VAT incurred on eligible
costs will need to be aware of the cash flow implications if they
have to pay their suppliers before the VAT can be recovered from
HMRC," Parkin concludes
ends
Notes to editors:
Suvra Datta, Grant Thornton press office 020 7728 2375 or via
email on suvra.datta@gtuk.com
Live Webinar
We will be running a live interactive internet seminar (webinar)
at 4.00pm on June 24, with a panel of experts who will be
commenting on what the announcement means for the UK economy, taxes
and the public sector. Viewers will be able to email questions in
to the live discussion. If you'd like to view this webinar, do let
us know.
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