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European proposals to allow reduced VAT rates for a wider range of services could provide the Government with an opportunity to boost the UK labour market, according to KPMG.
The EC has suggested extending its recent pilot scheme to allow all EU member states to apply a reduced VAT rate of 5% to certain labour-intensive services, including the supply of restaurant and catering services, hairdressing, window cleaning, building repairs and maintenance.
New law has been drafted and the European Council has discussed the proposal, urging the working party responsible to agree on wording, so that the law can be approved by the end of 2008.
The UK would then have the option of introducing new, reduced-VAT rates.
With current UK VAT rates at 17.5%, labour intensive businesses would benefit from an immediate 12.5% boost to their bottom line, said KMPG.
Tax partner Amanda Tickel commented: 'Once approved, these changes [will] present a targeted opportunity for the Government to support those working in the labour-intensive services outlined.
'Labour intensive businesses looking to cut costs would achieve the equivalent of a 12.5% cost reduction… [which] could make the difference between a business's survival or failure as the [economic] downturn bites'.
