Could the EU Demand Brits Pay VAT on Items that are Currently Exempt?

12 February 2016, 17:17

The Economics Commissioner for the EU, Pierre Moscovici, has announced he intends to review the zero rate of VAT Britain has in place for certain items sold in this country. He was quoted as saying the zero rate was “not the best idea”. While there is no confirmation that it will be abolished, it certainly looks as though the zero rate could be in jeopardy if the European Union gets its way.

The Prime Minister, David Cameron, has vowed to combat the plans proposed by the EU to prevent the zero rate from continuing. However, with the Prime Minister trying to secure a better deal for Britain in Europe, and the referendum not far away, this could well be another troublesome issue to deal with.

While Britain has a veto it can use to oppose the idea of getting rid of the zero rate of VAT, this will only work if enough other countries veto the idea as well. If we stood alone on the matter, it would mean the rate would be scrapped regardless.

The current rate of VAT in the EU is a minimum of 5%. This means if the zero rate used in Britain was abolished, to fall into line with the rest of the Union, we would see prices rising on certain items. Food items that currently do not have any VAT on them would go up in price. Children’s clothing would also become more expensive. Even medicines would become more expensive, since they are also regarded as a zero-rated item.

As you can see, the fallout from such a change could be significant. We all buy food and medicine, so everyone would be affected to some extent by the changes seen. We are used to prices rising gradually over time, but in reality, everything in these areas would rise overnight if the VAT was changed to a 5% rate (for example).

While it is too early to say if the zero rate will be abolished, it is clear that those in control of the EU want every country to be using the same rules and regulations. If we in Britain have a zero rate of VAT and the majority of countries do not, it seems almost certain that our zero rate will disappear sooner or later.

However, the real spanner in the works could be the referendum. Something like this coming to the fore could persuade yet more people to vote for the so-called Brexit – the British exit from the European Union. While things are very close, many polls are now pointing to a lead for the No camp. Perhaps this news regarding a potential rise in VAT on such essential items in Britain will push yet more towards the exit door.