Our new coalition Government’s emergency budget is due on 22nd June and many of my fellow tax advisers are predicting with almost certainty that the rate of VAT will go up from 17.5% to 20% and I would have to agree.
During election campaigning no party ruled out a rise in VAT, all merely stated that they had no existing plans to do so. I guess those plans were drawn up pretty quickly after Alistair Darling exited number 11.
The three main money-spinners as far as raising taxes are concerned have always been income tax, national insurance and VAT. Raising rates of income tax has always proved deeply unpopular and has cut many a political party’s honeymoon period short. National insurance rises were a favourite under Gordon Brown’s tenure as Chancellor, as they do not quite grab the headlines like income tax rises do, yet still yield the same level of revenue increases for the treasury.
In my opinion, there will never be a better time to increase the rate of VAT. The rate went down to 15% in December 2008 and back up to 17.5% in January 2010 without much grumbling from consumers. Businesses should have systems in place already to deal with a change in VAT due to the above ‘practice run’ and business to business sales will be completely unaffected.
The real hit will be taken by small retailers who will be unable to pass the VAT increase on to their customers. This could be the nail in the coffin for the few quirky shops remaining on our High Street. Fingers crossed for June 22nd.
