Will there be a temporary VAT cut?

Media reports suggest the government is considering a temporary cut in VAT in order to stimulate consumer demand with a lower VAT rate for the tourism sector — including pubs, restaurants and hotels one option being discussed.

A temporary VAT cut can provide a short term boost to the economy by giving people more cash to spend and has the advantage of being easy to implement. This could come as early as July as the government relaxes the two-metre social-distancing rule.

Pressure from business is growing for a VAT cut. The FT has quoted, Helen Dickinson, chief executive of the British Retail Consortium, who has said that cutting VAT and also income tax for low earners “would boost consumer demand and raise consumption”.

Any reduction in VAT would come at considerable cost to the exchequer but many close to the chancellor are of the opinion that the benefits to the economy of a temporary reduction in VAT might outweigh the costs.

The last VAT rate cut was back in 2008. It was introduced extremely quickly and caused implementation businesses. Here are a few things which businesses might want to consider in advance of a possible cut:

  • If you find you are collecting less VAT as a result of a reduction in the VAT rate, this will have an adverse impact on cash flow. It will be important to monitor your cash flow position and plan accordingly.
  • What about your software – can it be easily adapted to set up new tax codes or will you need a software provider upgrade?
  • Will in-house templates will need to be altered and do you have the resources needed to do this.
  • Do you sell items with price tags already attached – stickers are a quick fix or a VAT ‘discount’ can be offered at the till.

 

At this stage, whether there will be a VAT cut and what sectors might be affected is pure speculation. The Chancellor is expected to make an economic statement around 9 July when hopefully we will know more. If you need any advice email hello@chw-accounting.co.uk and a member of the team will be in touch.


This article is for general guidance only. It provides an outline, and may not include points which are important to your situation. You should not depend on this blog without taking advice based on the full facts of your case. The information given was correct at the time of publication.

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