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EXPLANATORY MEMORANDUM TOTHE VALUE ADDED TAX (CHANGE OF RATE) ORDER 20082008 No. 30201.
This explanatory memorandum has been prepared by HM Revenue and Customsand is laid before the House of Commons by Command of Her Majesty.
2. Description
2.1 This Order amends sections 2(1) and 21(4) of the Value Added Tax Act1994 (c. 23) (“the Act”).2.2 Article 3 effects a reduction of 14
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per cent in the rate of tax to becharged by virtue of section 2(1) of the Value Added Tax Act 1994. This reducesthe VAT rate from 17.5 per cent to 15 per cent. The change is to operate from 1stDecember 2008 to 30th November 2009.2.3 Article 4 makes a consequential change to section 21 of the Value Added TaxAct in relation to the valuation of imported goods.
3. Matters of special interest to the Select Committee on Statutory Instruments
The Order will breach the 21 day rule as it is to be made and laid on the date of the Pre Budget Report (PBR) when a package of changes to the VAT rate is to beannounced but is required to come into force on 1st December 2008 when theGovernment wishes the rate change to take effect. It is Government policy not to publicise the VAT rate changes in advance of PBR.
4. Legislative Background
4.1 This Order has been made by the Treasury in exercise of their powersunder sections 2(2) and 21(7) of the Value Added Tax Act 1994.4.2 Section 2(2) provides that the Treasury may by order increase or decreasethe rate of VAT for the time being in force under that section by such percentagethereof not exceeding 25 per cent as may be specified in the order and that anysuch order shall cease to be in force at the expiration of the period of one year from the date on which it takes effect, unless continued in force by a further order under that subsection.4.3 This is the first order made under section 2(2) for the purposes of thatsubsection. It is not the continuation of an earlier order.4.4 Section 21(7) allows an order under section 2(2) to contain provision
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making such alteration of the percentage for the time being specified in subsection(4) as the Treasury consider appropriate in consequence of any increase or decrease by that order of the rate of VAT .
5. Territorial Extent and Application
This instrument applies to all of the United Kingdom.
6. European Convention on Human Rights
Stephen Timms, the Financial Secretary to the Treasury, has made the followingstatement under section 19(1)(a) of the Human Rights Act 1998:In my view the provisions of the Value Added Tax (Change of Rate) Order 2008are compatible with the Convention rights.
7. Policy background
This change effected by article 3 (a temporary reduction in the rate of VAT) is being made as part of a package of measures designed to stimulate the UK economy and ensure the sustainability of public finances. The first change is being made by Order as it is required to come into effect on 1st December 2008.The other changes will be announced at PBR and will be legislated for in theFinance Bill 2009.
8. Impact
An Impact Assessment relating to the changes effected by this Instrument(amongst others) is attached to this memorandum.
9. Contact
Jack Fletcher at HM Revenue and Customs Tel: 0207 147 0252 or e-mail: jack.fletcher@hmrc.gsi.gov.uk can answer any queries regarding this instrument.
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Summary: Intervention & Options
Department /Agency:
HM Treasury
Title:
Impact Assessment of changes to the standardrate of VAT
Stage:
Implementation
Version:
1
Date:
24 November 2008
Available to view or download at: http://www.hm-treasury.gov.uk/consult_ria_index.htmContact for enquiries:
Charlette Holt-Taylor and
Tel:
020 7270 4392 / 020 7147What is the problem under consideration? Why is government intervention necessary?As explained in the Pre Budget Report, major economic shocks have hit every countryin the world. While commodity prices have recently eased, the credit shock hasintensified in to the worst global financial crisis for generations. These developmentsmean that economic prospects are exceptionally uncertain, but it is clear that the UK,like many advanced economies, has entered an economic downturn. As householdbudgets have been squeezed, consumers have cut back on spending. TheGovernmentisactinnowtomitiatetheimactofthefinancialshockleavin What are the policy objectives and the intended effects?As explained in the PBR, the proposed changes will provide further support for growthand incomes during the economic downturn by providing an immediate fiscal supportto the economy, while supporting the Government’s fiscal policy objective of ensuringthe sustainability of the public finances, in order to protect economic stability,What policy options have been considered? Please justify any preferred option.As part of the PBR process, the Government identified the appropriate way to deliver an immediate fiscal stimulus while ensuring the sustainability of the public finances. Toavoid the suppression of activity between announcement and introduction, theGovernment is implementing its preferred option for a fiscal stimulus as rapidly aspossible. This is a reduction in the standard rate of VAT from 17.5% to 15% from 1December 2008 until 1 January 2010, when the rate will return to 17.5%.When will the policy be reviewed to establish the actual costs and benefits and theachievement of the desired effects?The Government keeps all tax policy under review. Its impacts will be taken in to
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