EU Referendum

Reality Check: Does the EU control UK VAT rates?

Michael Gove MP saying: "We cannot lower VAT rates as long as wer are in the European Union"

The claim: Vote Leave says the UK cannot lower VAT rates as long as it is in the European Union. Michael Gove said the 5% rate of VAT on household gas and electricity bills could not be scrapped because of EU rules.

Reality Check verdict: EU rules mean the UK cannot reduce VAT on goods and services below 15%, the standard rate of VAT in the EU. The standard rate of VAT in the UK is 20%, so the government could reduce it by up to 5% today if it wanted. Domestic fuel is on a special list of pre-approved goods and services that are subject to lower VAT rates and it would require the agreement of all other EU members to reduce it further.

EU countries have been co-ordinating their VAT rates since 1992, as part of building up the single market and ensuring there is no unfair competition across national borders.

Under EU rules, countries must apply a minimum standard VAT rate of 15%. They have an option of applying one or two reduced rates, no lower than 5%, to certain specified goods on a pre-approved list.

Further reduction of the VAT rate, including to 0%, is also allowed but only for the goods which were taxed at that rate before 1991 and since then.

Changes to the VAT rules require unanimous agreement of all 28 EU countries.

The UK's standard VAT rate is 20%, so, within the current rules, the UK government has some flexibility to bring it down to 15%, if it wanted to.

It is right to say the UK cannot remove the VAT on household gas and electricity bills.

Although the UK charged 0% VAT on domestic fuel bills in 1991, the Conservative government introduced a VAT rate of 8% in 1993. This was later lowered to 5% under Labour. Under the EU rules, this is now the lowest VAT rate possible for British domestic fuel bills.

It is worth pointing out that it is not at all clear that a post-Brexit UK government would want to remove VAT on domestic fuel. This would depend, among other things, on the wider economic impact of leaving.

In April 2016, the European Commission proposed changes to EU VAT rules with the aim of giving member states more flexibility on rates.

There are currently two options being considered.

The first would allow all EU countries the same rights to apply zero and reduced VAT rates and the list of goods and services in this category would be reviewed on a regular basis.

The second would allow members to set reduced rates as they wished, as long as that did not create tax distortions in the single market.

Once this is established, and the European Parliament's views are taken into account, the Commission will draw up detailed proposals.

The finance ministers of all 28 EU countries will have to agree to these proposals unanimously before they can be implemented. There is no timetable or deadline for these changes, but the European Commission is working towards having the detailed proposals this year or next.

The EU is currently dealing with allowing the UK to lower the VAT on sanitary products to 0%. The EU finance ministers have endorsed the plan, which the European Commission pledged to finalise in 2016.


Read more: The facts behind claims in the EU debate


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