EU proposes VAT rule changes for small businesses

Officials from Europe have revealed that they are considering changing the VAT rules to let member states reduce the tax some small businesses have to pay.

The European Commission said it was looking at amending the VAT Directive 2006/112/EC.

Should the directive be altered, member states will be able to decide to apply lower VAT to certain small business sectors.

If the rules are ratified by all EU members, the changes will mainly affect housing services - including construction, maintenance and cleaning - restaurants, domestic care services and personal care services - such as hairdressers and beauticians.

Currently, the EU has rules in place which prevent governments from setting VAT at below 15 per cent.

Laszlo Kovacs, the commissioner for taxation and customs union, explained: "I propose generalising the optional application of reduced rates in sectors where there is sufficient evidence that no real distortions to the Internal Market will occur.

"I want to provide certainty about the application of reduced rates beyond 2010 for labour intensive sectors and provide all member states with the same options.

"There is no reason why restaurant services, for example, should be allowed to benefit from a reduced rate in one half of the European Union but not in the other half."