Much as though I applaud David Cameron’s plan to give struggling small companies a VAT holiday, a rather large obstacle occurs to me. Wouldn’t this be illegal under European Union law? The Sixth EU VAT Directive mandates all states to apply VAT the same way as long as the main rate is a minimum of 15% and the discounted rate at least 5%. Room for manoeuvre was tightened to almost zero two years ago in the EU Recast Sixth Directive. You don’t mess with this, as the Blair government found out when it lost its fight to grant companies the right to reclaim VAT spent on fuel.
So how will Cameron play this? Perhaps it won’t be an issue for some reason – and if there are any CoffeeHousers who know why, I’d be grateful for clarification. Because the EU VAT law (full text here)
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