Budget 2010: VAT rise expected after election

Despite the chancellor saying he had “no further announcements about VAT” in
today’s Budget, many in the profession believe that a rise in the standard rate
of VAT will come into force after a general election.

According to Richard Woolich, tax partner at DLA Piper UK LLP, the budget
contained “no great surprises from the tax point of view” before the upcoming
election: “We must wait for the post-election Budget, or more likely next year,
for the really hard-hitting changes,” he says. “VAT is likely to rise to 20%,
which is the EU average.”

John Voyez, VAT director at Smith & Williamson, agrees. “Many in the
profession are expecting a hike in VAT,” he says. “A 1% hike in VAT brings in
around £4.5bn to £5bn in tax receipts. As the average VAT standard rate in the
EU is around 20%, you’d think it would be a no-brainer to raise it.”

However while Voyez notes that a 2.5% rise in the standard rate of VAT to 20%
would “easily raise £12bn for the Treasury,” he admits that the current fragile
economic recovery should be taken into account. “A rise in the VAT rate could
impact inflation and the cost of living,” he says. “If which party is in
government is trying to kick-start the economy, a rise to 20% may not be such a
good idea, but a smaller rate rise could work. I’ll be surprised if the standard
rate remains at 17.5% beyond this autumn.”