Could the EU Be About to Hand Back VAT Powers?

8 April 2016, 15:40

You’ve probably heard of the arduous task of trying to get the ‘tampon tax’ abolished in this country. However, this is just the beginning. VAT as a whole is centralised in the European Union. This means those in charge in Brussels decide the rates of VAT that are applicable to specific things.

However, it looks as though they are going to backtrack on this. According to recent reports, a lot of fraud goes on in relation to VAT across the European Union. In an attempt to combat this, and to ensure rates of VAT can be decided by individual states instead of centrally, the rules could be set to change. A decision is due to be arrived at by next year.

We don’t know exactly what shape the new plans will take, and it is likely to be some time before we do. However, we know there is a chance it could make a big difference to the prices of certain items. The tampon tax has received widespread headlines thanks to the fight to remove it from feminine hygiene items. While those in the government have voiced their support for its removal, they also said it was currently impossible to do so, purely because the EU was in charge of setting VAT rates.

There are issues here, whichever way you look at things. Different rates of VAT in different countries can make it very difficult to trade outside of your own country. One rate in the UK is likely to be very different to another rate in another country, even when it is in the EU. Cross-border fraud is also said to be a major problem that needs to be solved. Billions are lost annually due to this form of fraud.

The main aim seems to be to make VAT simpler to understand and apply, regardless of which EU country someone is in, and the amount that is applicable to their sales or anything they wish to buy. Quite how the VAT system can be simplified, not just in one country but across the EU, remains to be seen.

One thing is clear though – the idea of trading across borders is very unattractive for many businesses at present. The more we can do to eradicate the difficulties, the better it will be. We saw how complex this can be with the VAT MOSS fiasco of just over a year ago. Even now, there are people who have had to close their businesses because the new rules were simply too complex to comply with. So will the new changes make things easier, or will they be worse still? We shall have to see what these new plans bring us in time, and whether they will be better or worse.