Unlike most aspects to do with taxation, VAT is regulated by the EU. Every member state within the EU must apply VAT at a standard rate that can be anything between 15 and 25 per cent. All countries can also have up to two reduced rates between five per cent and 15 per cent. reduced rates can only be applied to a limited range of goods and services specified in the regulations. A few items are permitted to have ‘super-reduced rate’ of less than five per cent a ‘parking rate’ or a zero rate, and others may be exempt from VAT.
The situation regarding VAT rates is complex but the EU’s intention is to permit the use of reduced rates where:
- There is a social or welfare benefit, e.g. food, medicine, housing;
- There is a cultural or educational dimension, e.g. books, theatre;
- Increased energy-saving and efficiency are promoted;
- Labour-intensive services are supplied locally, e.g. gardening, personal care, house repairs.
There are 27 member states in the EU. Every country except Denmark has at least one reduced rate. Exactly half of the remaining countries have two reduced rates and the other 13 have a single reduced rate. Five have a ‘super-reduced rate’ and five have a ’parking rate’. The UK currently has a single reduced rate of five per cent which is applied to a limited range of goods and services including domestic fuel, children’s car seats, insulation materials.
Services that can have a reduced rate Includes:
- Accommodation provided by hotels and similar establishments including the provision of holiday accommodation and the letting of camping sites and caravan parks,
- Admissions to shows, theatres, circuses, fairs, amusement parks, concerts, museums, zoos, cinemas, exhibitions and similar cultural events and facilities
- Restaurants services