SME Business News

The European Commission has made proposals to allow VAT cuts on labour intensive and locally provided services, a move that could help many small businesses and high street shops.

The commission began a three year experiment in 1999 to see whether reduced rates of VAT in certain sectors would have a positive impact on job creation and combating the black economy. National governments could submit to reduce VAT to not less than five percent in two labour-intensive areas. This experiment has been extended several times, but now the Commission has suggested formalising the arrangement to allow national governments more flexibility in applying reduced rates to stimulate the economy.

The list of areas under which national governments could apply for reduced rates now includes:

1. The housing sector – supply and construction of all housing (including renovation, maintenance and cleaning);
2. Minor repair of tangible movable goods, including bikes but excluding other means of transport. Examples include shoes, clothes, computers, watches;
3. Cleaning and maintenance services of all these goods and, in this case, other means of transports are included;
4. Domestic care services (e.g. home help and care of the young, elderly, sick or disabled);
5. All personal care services (including hairdressing, beauty services);
6. Gardening services;
7. Restaurants.

The Federation Of Small Businesses (FSB) has backed the proposals and is urging the UK to support and implement cuts.

Tina Sommer, EU and international affairs chairman, said:

“As the credit crunch bites, some of the first luxuries to go will be home improvements, eating out and a trip to the hairdressers, so local businesses in these areas will welcome this move. The British government must take advantage of these proposals to ensure our high street can survive the economic downturn.  The UK has been allowed to exclude certain items, such as newspapers and children’s clothing, from VAT altogether, and this historic exemption must continue.”