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The UK chancellor has cut the value-added tax (VAT) rate by 2.5 percentage points to 15% in an effort to promote business growth and stimulate the economy.

Alistair Darling made the announcement during his pre-budget report speech on Monday.

The new rate, which is the lowest permitted by EU law, will come into effect from Monday December 1 and will continue for 13 months before returning to 17.5% at the beginning of 2010.

Whether the cut will improve business conditions has led to mixed reactions from tax professionals

"The change should not only affect retailers and consumers but will also be welcomed by financial institutions who are unable to recover VAT and will therefore see a reduction in their cost base," said Mike Bailey, UK head of indirect tax at PricewaterhouseCoopers.

But Debbie Jennings, VAT director at PKF accountants & business advisers, said business will incur the administrative costs of changing their systems and invoices to incorporate the new rate.

Questions have been raised as to how companies will be able to cope with the change in such a short period of time.

"You need to think very, very carefully about what needs to change and how you are going to change it," said Gary Harley, head of indirect tax at KPMG in the UK. "Whatever decision businesses take, they need to consider the change back to 17.5% in just 13 months time."

"Those who go for a quick fix solution may regret this in a few months as a relatively small change can have a profound effect across all areas of your business. An early dialogue with HMRC will be essential," Harley added.

Large multinational enterprises will largely be unaffected by the cut as VAT plays a minor role in the running of day-to-day operations.

"This will not change our investment plans or our cash flow," said Ian Brimicombe, head of tax at AstraZeneca. "This won't be the case for all large organisations, but I expect many will be in the same situation as us."

The news of the cut comes as Germany and France rejected proposals to slash VAT rates.

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