VAT reforms welcomed by small businesses

Small companies in the UK would benefit from plans unveiled yesterday to cut VAT for labour intensive and locally-provided services, the Federation of Small Businesses (FSB) has said.

Under the proposals, sectors including hairdressing and restaurants could see their VAT rates cut to below the current 15 per cent threshold.

The FSB has welcomed the plan, saying that the potential cuts could help firms during the current economic slowdown.

However, the pressure group stressed that it was vital that previously negotiated VAT exemptions for some UK businesses remain in place.

"As the credit crunch bites, some of the first luxuries to go will be home improvements, eating out and a trip to the hairdressers, so local businesses in these areas will welcome this move," FSB EU and international affairs chairman Tina Sommer explained.

"The British government must take advantage of these proposals to ensure our high street can survive the economic downturn.

"The UK has been allowed to exclude certain items, such as newspapers and children's clothing, from VAT altogether, and this historic exemption must continue."