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VAT increase means aviation avoids £600 million more in tax

Today, 4th Jan 2011, the rate of VAT increases from 17.5% to 20%. This means that aviation’s exemption from tax is now worth even more.

It was estimated that if VAT at 17.5% were applied to air tickets and to the price of fuel, it would have raised £4.4 billion pa.  (This is a rough calculation. The Treasury have been invited to confirm or alter the figure but have declined to do so.)

With the increase of VAT by 2.5%, the tax avoidance by the aviation industry has increased, at a stroke, by some £600 million pa  (4.4 x 2.5 /17.5).