Press Release

VAT Rise Imminent - Research from LexisNexis

An increase by 2.5% to 20% would bring the UK's rate more closely in line with the EU average of around 20%

London, 15 February, 2010 - Speculation that the rate of VAT will increase to 20% is made into a near certainty if you examine current trends and the lessons of history says LexisNexis tax expert, Paul Stainforth. Research into European VAT rates (Table below) and past VAT rises support the view.


 

Stainforth says, "Given the size of the deficit, and the trend to increase the rate of VAT in EU Member States, it could be a big surprise to the markets if an increase in the UK's standard rate of VAT is not announced in the first Budget after the election, regardless of which party gets into power. An increase by 2.5% to 20% would bring the UK's rate more closely in line with the EU average of around 20%."

The three drivers for an imminent change are:

1. History suggests that rises in VAT tend to be made at the start of a new Parliament, regardless of whether there is a change of Government. 

Three of the last four major rises in VAT were made at the start of a new Parliament:

-  VAT increased from 12.5 to 15% by June 1979 Budget - this followed the May 1979 election won by the Conservatives
-  Extension of 25% rate to 'luxuries' in first full Budget of new Parliament, in April 1975 following the October 1974 election won by Labour
-  Introduction of 25% VAT rate for petrol in third 1974 Budget - this followed October 1974 election won by Labour.

The main exception was the increase in 1991 from 15% to 17.5% - this was made towards the end of a Conservative Parliament as the price paid for removing the poll tax.

And we needn't necessarily expect too much warning for any increase - one of the most recent UK precedents, the 12 June 1979 Budget, saw VAT increased from 12.5% to 15% six days later.

2. A rise in the UK's standard rate (17.5%) would bring us more in line with the average EU standard rate (of 20%). 

VAT is an EU tax so any discussion of the appropriate rate should take into account the European context. Of all the EU countries, only Luxembourg and Cyprus (with standard rates of 15%) and Spain (16%) currently have lower rates of VAT than the UK - and one of those countries (Spain) has already pledged to increase their rate of VAT (to 18%, from July 2011). Even Germany, which traditionally has low rates of VAT, now has a higher standard rate of VAT (19%) than the UK.

3. A rise would be consistent with the upward trend in other EU Member States. 

Since January 2008, we have seen rises in the rate of VAT in EU Member states of 

  1% (Czech Republic - current rate 20%)
  2% (Estonia - current rate 20%)
  3% (Latvia and Lithuania - both with current rates of 21%)
  5% (Hungary - current rate of 25%)

Germany introduced a 3% rise in VAT from 16% to 19% in 2007.

Finland and Spain last year promised VAT rises in 2011 of 1% and 2% respectively.

While the UK made a temporary 2.5% cut in 2009, only one EU Member State actually reduced the rate of VAT over the last 2 years - this was Portugal (which reduced its rate by 1% to 20% in 2008 in an overtly populist move prior to elections).

 

 

EU Member
State
Jan
2008
Jan
2010
Note % Movement
over last
2 years
% difference
to current
UK rate
Austria 20.0% 20.0%    0 +2.5
Belgium 20.0% 20.0%   0 +2.5
Bulgaria 20.0% 20.0%   0 +2.5
Cyprus 15.0% 15.0%   0 -2.5
Czech Republic 19.0% 20.0%   +1 +2.5
Denmark 25.0% 25.0%   0 +7.5
Estonia 18.0% 20.0%   +2 +2.5
Finland 22.0% 22.0% 23% from
July 2010
0 +4.5
France 19.6% 19.6%   0 +2.1
Germany 19.0% 19.0%   0 +1.5
Greece 19.0% 19.0%   0 +1.5
Hungary 20.0% 25.0%   +5 +7.5
Ireland 21.0% 21.0% Temporary
0.5% increase
in 2009
0 +3.5
Italy 20.0% 20.0%   0 +2.5
Latvia 18.0% 21.0%   +3 +3.5
Lithuania 18.0% 21.0%   +3 +3.5
Luxembourg 15.0% 15.0%   0 -2.5
Malta 18.0% 18.0%   0 +0.5
Netherlands 19.0% 19.0%   0 +1.5
Poland 22.0% 22.0%   0 +4.5
Portugal 21.0% 20.0%   -1 +2.5
Romania 19.0% 19.0%   0 +1.5
Slovakia 19.0% 19.0%   0 +1.5
Slovenia 20.0% 20.0%   0 +2.5
Spain 16.0% 16.0% 18% from
July 2010
0 -1.5
Sweden 25.0% 25.0%   0 +7.5
UK 17.5% 17.5% Temporary 2.5%
cut in 2009
0 n/a


Research: LexisNexis Tax Journal

 


About LexisNexis

LexisNexis® is a leading global provider of content-enabled workflow solutions designed specifically for professionals in the legal, risk management, corporate, government, law enforcement, accounting and academic markets. LexisNexis originally pioneered online information with its Lexis® and Nexis® services. A member of Reed Elsevier [NYSE: ENL; NYSE: RUK], LexisNexis serves customers in more than 100 countries with 18,000 employees worldwide.

In the UK, LexisNexis online services include LexisLibrary - named Online Product of the Year at the Legal Technology Awards - and Nexis® the single most powerful global news & business information service. The company has over 1,000 employees in the UK.

Press Contact:

Mandy Blanks
PR Manager
LexisNexis
Mandy.blanks@lexisnexis.co.uk 
Tel: 44 (0)20 7400 2874

Additional Contacts: 

Timothy Lloyd (freelance tax consultant, former Head of Taxation at Woolworths) author of article "Imminent rise in the VAT rates?" published in Tax Journal dated 15 February 2010 - 01628 855022

Richard Asquith (Head of VAT Services at TMF Group) author of "Comment on EU VAT rates" published in Tax Journal dated 15 February 2010 - 0870 067 8881

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