Brexit still remains a tumultuous issue for many at the moment as comments, leaks and rumours continue to paint a blurry picture of how the relationship between the UK and EU will work in the coming years. David Frost recently provided an update on how progress was moving forward, with his comments showing adamant albeit vague insight.
Paul Green, the CEO of over50smoney.com, detailed tax arrangements in the UK will likely be altered with VAT being a prime target.
This could happen as the UK had to introduce VAT when it joined the European Economic Community.
Paul went on to theorise the UK could likely keep VAT given it is understood by consumers and businesses and accounts for around a fifth of tax revenues.
However, with the UK separated from the EU, the government would have more freedom in how this tax could be further implemented and adapted.
Paul explained how this could work out in practice: “The chancellor may seek to realign some elements of the scheme to better meet the needs of the UK economy and UK consumers.
“For example, currently the UK cannot add to the zero rated items such as food and children’s clothes that were agreed as part of the original accession deal to the EEC.
“Currently there is a prescribed list of goods and services that EU member states can subject to a reduced rate of VAT.
“This cannot be less than five percent. The minimum standard rate of VAT is set at 15 percent. Under EU rules, member states cannot levy a rate of VAT that is higher than the standard rate. This means that the UK cannot, for example, have a higher luxury goods rate.”
Unfortunately, in coupling Brexit options with the current economic reality, Paul warned it is likely Rishi Sunak will have no choice but to raise taxes in certain areas.
As Paul concluded: “Going into 2021 the government will need to look at ways to increase tax receipts to pay for the support schemes such as Furlough introduced during the pandemic.
“It is highly likely that the Chancellor will take advantage of new flexibility Brexit brings on VAT to increase overall revenues while protecting the cost of some sensitive goods.
“We could see some new VAT rates introduced and changes in ratings for certain products and services.”
Paul noted the uncertainty surrounding Brexit trade talks makes it hard to predict exactly how personal finances will be impacted.
Because of this, he urged everyone involved to bring the negotiations to an end to allow consumers to analyse how they’ll be affected.