Pictured above: Tony Jackson, a director in the Birmingham office of BTG Tax

VAT is likely to go up to 20 per cent in the upcoming emergency Budget, a tax expert has warned.

Tony Jackson, a director in the Birmingham office of BTG Tax, the tax division of Begbies Traynor Group, said it could cost thousands of jobs.

It would mean an extra £16 billion towards cutting the budget deficit.

BTG reckons the move could be staggered - part immediately and part in January.

Mr Jackson said: "With a well-publicised budget deficit and a standard VAT rate at the lower end of the EU range, it is no surprise that a change seems extremely likely in the short term.

"The EU average is around 21 per cent across the 27 Member States. The maximum permitted standard rate is 25 per cent.

"Politically, a VAT rate change may be more palatable than an increase in income or corporate tax.

"VAT is, effectively, discretionary as a tax on spending given that well over a third of expenditure is zero-rated and corporate taxes are at the mercy of the generation of profits. However, the Chancellor will have to balance a possible phased rate increase, thereby reducing the negative impact on consumer demand and the retail sector, with the costs of systems changes. 

"Phasing the increase would require multiple system changes. Research for the British Retail Consortium estimates that a VAT rate increase to 20 per cent could cost 163,000 jobs and cut consumer spending by £3.6 billion over the next four years.

"Having said that, I would anticipate a 20 per cent rate at the next Budget."

But the jury is out on whether zero rated items will get hit.

Mr Jackson said: "Changes to the UK's zero rates would not see much challenge from the EU as many were retained when we joined the EEC in 1973, the likes of food, children's clothing, housing and books and newspapers. However, given the talismanic nature of the UK's zero rates and the public's perception that VAT is a tax on luxuries, such changes could be a difficult sell to the  electorate."

He is advising businesses that where VAT cannot be fully recovered they consider should planning to bring forward the tax point for expenditure before Budget Day on June 22 to benefit from the lower rate.

For more information on Begbies Traynor Group, view their website here: www.begbies-traynorgroup.com