Darling stands firm on VAT rise

Alistair Darling has been forced to reiterate that the current rate of VAT will increase, dashing hopes inspired by one of his Cabinet colleagues that a rise may be avoidable.



The chancellor's comments build on his pledge in the Budget in April, when he cut VAT to 15 per cent – a rate which he said would only apply for the next eight months.



As a result, companies and their advisors have widely anticipated VAT to return to its pre-Budget level of 17.5 per cent in December, or by January at the latest.



But the potential chaos from changing and hiking VAT, and at one of the busiest trading times of the year, seemed on the shelf amid comments by Harriet Harman MP.



The Leader of the Commons recently said the planned rise in VAT was "under review" and that ministers would be flexible with the tax, in line with traders' wishes.



Unhappy at her intervening, Mr Darling used a televised interview on Sunday to set the tax record straight, insisting VAT would "definitely" rise to 17.5 per cent for 2010.



"The reason that I cut VAT was to bring forward spending during this year as part of the process of helping our economy," he told the BBC's Andrew Marr programme.



"But you know that it costs one billon pounds a month. I was quite clear at the Budget and clear when I announced this last November that the VAT rate would return to the 17.5 per cent at the end of this year."



In order to ease the burden of implementing the rise, business wants to be given 30 days, not the legal requirement of 14 days, in which to issue invoices once the rise takes effect.



In response to the announcement in November, which signalled the rise would come in on December 1st 2009, the Forum of Private Business also said HMRC should adopt a 'light touch' to penalising errors in VAT returns.



At the same time, the forum said HMRC should increase the visibility of its Business Payment Support Service, while extending the issue-time for credit notes from 14 to 45 days.



Andrew Needham, the FPB's expert on VAT, said: "Revenue & Customs was open to my suggestions and said that it would consider and make any changes within its power to assist small firms at this difficult time. I am confident that we have convinced it to make some small changes which will provide some relief to our members."