The UK is one of 28 member states which constitute the European Union. Applicable rates of VAT are set by European legislation which the UK is required to follow subject to any derogation agreed at the time of accession e.g. zero rating. But might this requirement be relaxed?
Women’s sanitary products have previously been set at the reduced VAT rate of 5% which was the lowest rate permitted by European legislation. This was questioned by the UK and on 17 March 2016 the European leaders agreed that the VAT rate for women’s sanitary products should be reduced to zero. New draft legislation in Finance (No. 2) Bill 2016 has been set out, but amendments to European legislation have not yet been made.
This could be the first step towards a new, more relaxed era where European member states can set their own rates of VAT. In January 2016, the European Commission stated in Section C of its VAT Action Plan that it would consider “giving Member States full flexibility in [VAT] rates”.
Recently the scope of the UK’s zero rates has been debated at European level, in the context of a campaign for the 5% VAT rate on women’s sanitary protection to be cut to zero – a change that would be contrary to the current agreement on VAT rates.
The European Commission’s VAT Action Plan includes proposals for increased flexibility for member states with regard to reduced rates of VAT and to allow countries to extend the number of zero rates for VAT, including on women’s sanitary products. This is an important breakthrough and perhaps the first step to countries having the ability to set their own rates.
For further information and help on VAT, whether in the UK or for international transactions, please contact the TaxDesk on 0845 4900 509 and ask for Vaughn Chown.