VAT changes could improve prospects for private companies
One of the announcements from last week’s Budget could see the removal of a ‘VAT disadvantage’ which meant that private sector companies have to pay VAT charges when they pitch for work which will ultimately be backed by the tax-payer. The change will apply to those who are putting in bids to non-departmental public bodies and is designed to remove the advantage that ‘in-house’ teams have had over external bodies when it comes into place on April 1st.
Until now, private firms have been forced to slash their prices by 20 per cent in order to factor in the difference in prices accounted for by VAT. The move is designed to remove the ‘imposition’ of VAT which would incentivise public sector outsourcing and make it more widespread. The Business Services Association, whose membership includes companies such as Capita, Atos, and PA Consulting, IT contractors who have undertaken substantial projects for the government in the past. As one of the most technologically focussed budgets in recent memory, contractors and companies which provide IT services will be glad to hear that the importance of digital technology in both the delivery of public services and the potential that digital technology represents.
The removal of the VAT cost means that eligible public bodies will be in a position to reclaim VAT which is payable on outsourced and shared services. The changes to the VAT rules will be enshrined in a new section of the Value Added Tax Act, which remains largely unchanged otherwise given the Chancellor’s decision to keep the prevailing rate at 20 per cent. However, there were warnings from the Labour party who believe that if the Conservatives win in the upcoming General Election they will hike the rates.
Other aspects of the budget which could impact on private companies include new measures which will require government employees to use services such as Airbnb and Uber to get better deals on their transport and accommodation costs. This will be a welcome move for private companies which might be able to benefit from cost-cutting measures on the part of the government as they push employees towards alternative providers.
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