EU Referendum

Reality Check: Would Brexit reduce VAT by 5%?

Charmi asks "If we leave the EU, will VAT be reduced by 5%?"

The question: Charmi asks BBC Radio 4's PM programme: "If we leave the EU, will VAT be reduced by 5%?"

Reality Check verdict: The standard rate of VAT in the UK is 20%. This could go down by 5% today, if the government wanted, because each member state is free to set the VAT rate above 15%, the standard rate of VAT in the EU. Some goods and services are subject to special rules - countries can set VAT rates below 15% on these without the agreement of other EU member states. But VAT rates cannot be taken below 5% without the agreement of all 28 member states.

As part of the European taxation and customs union, EU member states have to apply a minimum standard VAT rate of 15% to all non-exempt goods and services.

Each member state is free to set the VAT rate above 15%, which explains the current variation in rates between them.

The UK's current standard VAT rate is 20%. The UK government is therefore free to reduce the VAT by 5% right now. It does not need EU approval for that, nor does the UK have to leave the EU in order to do it.

Some goods and services are on a pre-approved EU list and EU rules don't apply to them in the same way. If countries wanted to set VAT rates below 15% on these items, they could do so without the agreement of other EU member states. If a country wanted to go below 15% on goods or services that are not on that list, it would need all the other countries to agree unanimously.

But VAT rates on any goods and services cannot be taken below 5% without the agreement of all 28 member states. On domestic fuel, the minimum rate permitted is 5%, which is what the UK government currently applies.

If the UK leaves the EU and does not agree a deal to stay inside the Single Market, the government would not be bound by the minimum standard VAT rate of 15%, or by the minimum reduced rate. It would be able to put the standard VAT rate below 15% as well as reduce VAT to zero on any goods or services it wishes.

How likely would that be? It would depend on the government wanting to do it and being able to afford to. If economic growth were to be lower following an exit from the EU, as most economic forecasters predict, it would make it less likely.

More information is available on the European Commission website.


Read more: The facts behind claims in the EU debate


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