Commentary

V4.401 Overview and general principles of the reduced rate

Part V4 Exemption, zero-rating and reduced rates

V4.401 Overview and general principles of the reduced rate

Introduction to reduced rate

V4.401 Overview and general principles of the reduced rate

The UK currently operates a reduced rate of VAT of 5% for a variety of descriptions of supplies and their equivalent acquisition or importation1. The descriptions of supplies, acquisitions and imports subject to this reduced rate are set out in VATA 1994, Sch 7A2.

Basis for reduced rate in EU law

The UK, along with other member states, is entitled to apply one or two reduced rates of not less than 5%3 to certain goods and services. These goods and services are specified in Directive 2006/112/EC, Annex III4. However, lower rates that were already in existence prior to 1 January 1991 may be retained provided they are in accordance with the principle of fiscal neutrality, and are for clearly defined social reasons for the benefit of the final customer5. The application of these qualifications was tested in EC Commission v French Republic6 where the ECJ held that France was entitled to tax certain medical products reimbursable under its social security system at a lower rate of VAT.

The reduced rate may also be applied, after consultation with the VAT Committee7 to supplies of natural gas, electricity and district heating (with effect from 1 January 20068), and to imports of works of art, collectors' items and antiques9. In EC v France the European Commission brought an action against France in relation to the reduced rate of VAT it applied to the fixed part of the prices for gas and

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