Big Four firm KPMG has put forward proposals for VAT to be cut to 5% to help sectors such as restaurant and catering, work on private homes, hair dressing and window cleaning. Calls for the option to implement 5% VAT on labour intensive service sectors was recently agreed on by all 27 EU member states. KPMG says that this change would 'substantially lower VAT bills' for certain industries. KPMG tax partner Amanda Tickel said: 'Such sizeable VAT cut for labour intensive sectors could significantly shore up business margins and support employment in these sectors.' The report says that the 2009 Budget is likely to see VAT return to its previous charge of 17.5%, after last years 2.5% slash was criticised by the accountancy firm as a 'costly initiative which has had little effect on stimulating retail demand'. The report also suggested temporary removal of the payment of account regime on large businesses that have an annual liability excess of £2m. In addition, KPMG said that default charges on late VAT payments arising from credit crunch problems should be replaced by a reasonable interest rate - a step that could help larger businesses like small ones, which have the Business Support Service to help with VAT payments.