The EU is looking to introduce more flexibility with the setting of VAT. The VAT rules have been in place since 1992 and it is felt they are now out of date. Currently member states can only apply reduced VAT rates to a limited number of products.

The EU Commission’s Proposals

Two separate reduced rates of between 5% and the standard rate chosen by the Member State

• one exemption from VAT (or ‘zero rate’)
• one reduced rate set at between 0% and the reduced rates

The current, complex list of goods and services to which reduced rates can be applied would be abolished and replaced by a new list of products (such as weapons, alcoholic beverages, gambling and tobacco) to which the standard rate of 15% or above would always be applied.

Member States will also have to ensure that the weighted average VAT rate is at least 12%.

The new regime also means that all goods currently enjoying rates different from the standard rate can continue to do so.

It is hoped that this measure will help small and middle businesses