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By | Joe Fay 11th March 2009 12:31

UK extends VAT crackdown as EU OKs cut-rate cobblers

Bike menders, hairdressers to spearhead recovery

The EU has given the green light to the UK to extend its reverse charge VAT scheme aimed at cracking down on carousel fraud.

The two year extension to the UK's efforts to claw back VAT on alleged dodgy mobile phone and computer chip deals came at a meeting of European finance ministers that also OK'd a raft of VAT changes to help Europe trade its way through the economic downturn - as long as you accept that the European economy is based on bike menders, sheet repairers and a load of cobblers.

The council declared that "that reduced VAT rates may, depending on the circumstances, have positive and negative economic effects, so that more efficient alternative solutions should always be considered before a member state decides to use the option to apply reduced VAT rate."

More efficient alternatives presumably being in short supply, the council then decided that that all member states should have the option to apply reduced VAT rates on a permanent basis to a range of economic activity.

These include "minor repairing of bicycles, shoes and leather goods, clothing and household linen (including mending and alteration)". So, that takes care of Europe's high tech sector.

The ministers also struck a rare blow for transparency, OK-ing reduced VAT on "Window-cleaning and cleaning in private households".

Personal services also scored a potential VAT reduction, with the ministers giving their blessing to cuts on "domestic care services such as home help and care of young, elderly, sick or disabled" as well as hairdressing.

Perhaps recognising that the building sector is crumbling before our eyes, members are at liberty to reduce VAT on the "renovation and repairing of private dwellings, excluding materials which account for a significant part of the value of the service supplied".

France apparently secured the possibility of VAT reductions on "restaurant services".

It's probably fair to say that much of the above activity tends to occur within the black economy, and is unlikely to trouble tax authorities in the first place.

Amidst all these (potential) VAT giveaways, there was barely space to record that the UK has been given a two-year extension to the reverse charge VAT regime which aims to bring carousel frauds to a juddering halt, and actually ensure that VAT money flows into the Exchequer.

It's difficult to know whether the scheme, kicked off two years ago, is actually having an effect. However, there seems to be less alarm at Whitehall about the scams, which last year were estimated to be costing the UK around £3bn in lost receipts.

Then again, that does seem like peanuts when compared to the billions being used to prop up the UK's banking sector.

Meanwhile, the council angered environmentalists by declaring that "reduced VAT rates as a tool for achieving environmental policy objectives are relevant only to a certain extent". ®

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