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Indirect tax

The Pre-Budget Report confirmed that the standard rate of VAT will revert to 17.5% with effect from 1 January 2010. However, The Chancellor surprised some observers by making no further changes to the VAT regime, or to announce any further increase in the rate of VAT. The increase to 17.5% will put further pressure on hard pressed retailers, however given the need to raise additional revenue they may feel that the decision not to increase the rate beyond 17.5% was probably the best possible outcome.

Small businesses using the flat rate Scheme will see the percentages they use to calculate their VAT liability being revised to reflect the reversion of the standard rate of VAT to 17.5%. The new rates will be implemented on 1 January 2010 and should result in over two thirds of users of the flat rate scheme having a lower rate or the same rate as they did last December when the flat rates changed to reflect the 15% VAT rate.

However although no further changes were announced to VAT, the PBR did include the announcement of some IPT anti-avoidance legislation, which could see IPT being levied for the first time on administration charges and fees paid to insurance companies and insurance brokers on or after 9 December 2009. However, this will only apply where the charges relate to insurance contracts with private individuals and not businesses. There is also a reduction in the rate of Bingo duty to 20% from April 2010.

Perhaps the only good news for consumers was the Chancellors decision not to increase the rate of duty on alcohol and tobacco when the VAT rate increase on 1 January 2010.

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