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General Election: VAT Perspectives – Reform UK

by Berthold Bauer on July 2, 2024

On 22nd May 2024, Prime Minister Rishi Sunak announced a general election to be held 4th July 2024, prompting speculation about tax measures each party might adopt.

This article seeks to pull out the VAT policies as contained in key party manifestos, and touches on the on rationale, impacts and uncertainties these bring. For avoidance of doubt, this article does not seek to comment on resources beyond the manifestos, e.g. interviews, debates, statements from candidates in isolation, etc.

Reform UK

‘Reform the Tax System’ & ‘Major simplification is needed’

  • Much of Reforms tax policies are connected to scrapping taxes, simplifying taxes and introducing tax breaks.
  • It isn’t always clear how these would be implemented or applied, for example, VAT & other tax breaks are touted for the Social Care System and UK defence industry, but there are no further details than this.

The policies that are more specific on VAT are as follows:

 ‘Scrap VAT on energy bills.’

  • The current 5% rate is was introduced in 1997 under Labour who brought the rate as low as they were allowed to go within EU VAT regulations. In contrast, most other EU countries levy the full standard rate of VAT on domestic energy bills, with the highest being Hungary, Sweden and Finland which charge 27%, 25% and 24% percent respectively.
  • In Jan 2022, the Resolution Foundation estimated that such a policy would come at a cost of around £2billion to the Treasury which needs to be funded by some other means. Reform have not directly linked this policy to other income generating policies, so how they would cover this cost is to be seen.

‘Abolish the VAT Tourist Tax’

  • This is in reference to reinstating VAT free shopping available to tourists visiting the UK. The suggestion here is that visitor footfall, and in turn visitor spending would increase and in turn likely result in a net gain to public finances, increased GDP, and job creation.
  • Reform refer to this generating an additional 2 million visitors which would outweigh the initial VAT loss by reintroducing the scheme.
  • However, whether VAT is a consideration for tourists visiting the UK, and where other factors may have contributed to a reduction in visitor footfall since 2021 when the incentive was removed, is not touched upon by Reform.

Lift the VAT Threshold to £150,000 Free up small entrepreneurs from red tape.

  • At £90,000 currently, the UK already has the highest VAT registration threshold for resident businesses across Europe, with most EU countries at much lower thresholds. Raising this further would give some relief to those SMEs who find themselves at a competitive disadvantage to those on the cusp of registration.
  • When the threshold was increased in April 2024, the policy impact note released estimated this would provide an administrative benefit of £5million per year to those business now needing to register.
  • Conversely the impact to the Exchequer was estimated at £150million per year, and a cumulative impact of £445million to 28/29. This is only the cost in respect of a £5,000 increase to the threshold, let alone what a £60,000 increase would bring.
  • The offset is the administrative benefit and economic growth as a result however, the latter would not be seen immediately, instead a number of businesses would suddenly fall below the VAT registration threshold and would likely relinquish their VAT status to maintain a competitive edge, leaving the taxpayer to cover the shortfall.

Tax relief of 20% on all Independent Education No VAT on Fees.

  • This statement is most likely presented in response to policies from other parties such as Labour and the Greens which have posed applying VAT to independent school fees, rather than being a new policy per se.
  • However, this could be interpreted as providing further tax reliefs to independent schools, e.g. allowing VAT on expenditure incurred in relation to school fees to be fully reclaimable, which currently would be blocked for VAT reclaim.

 

See other party VAT perspectives:
Conservative Party
Labour Party
Liberal Democrats
Green Party

 

We have been in conversation with many organisations on the potential impacts these policies may have on them and their viability. If this is something you would like to discuss further, then please contact us via our free VAT helpline and a consultant will reach out to you to discuss.

Berthold BauerGeneral Election: VAT Perspectives – Reform UK

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