For various reasons, Tyler has been taking a look at which purchases attract VAT, and which don't. For future reference here are a few answers for your next HMRC Quiz Night (see also Wiki article):
- VAT will raise £81bn this year- c £3,300 per household
- There are three rates- a general rate of 17.5%, a reduced rate of 5% (applying to domestic fuel, sanitary products and children’s car seats), and a zero rate (items such as food, books and children’s clothing- details of which rates apply here)
- Some zero rated items- in particular food and children's clothes- are zero rated only because the UK has a derogation under EU law; the UK is the only EU member to zero rate food, and the position remains under long-term threat from the EU's desire for tax harmonisation.
Given the parlous state of our public finances, and the pressure for EU harmonisation coming from Brussels, there's a good chance our VAT rates are going up over the next few years. Dermot Gaffney, an indirect tax partner with the accountant KPMG, says:
"The public perception is that VAT is very high. In fact, we have one of the lowest rates in Europe. But the reality is there is bad news coming. With the drive towards harmonisation across Europe, the only way rates are going to go is up.
We saw that last year with Germany increasing their rates from 16 to 20 per cent. I suspect somewhere around the 20 per cent mark might end up being the average."
But as things stand, with three different rates, there are some hilarious "in-out" comparison (from the Scotsman):
- If you buy eggs to eat, they are zero rated as a foodstuff; if you buy them rotten for throwing, they attract VAT
- Taking part in sport when provided by a non-profit-making body is exempt from VAT; in 1996, however, a tribunal ruled pigeon fanciers should pay VAT as it was the pigeon getting the exercise
- In Luxembourg, the lack of a crematorium means corpses are sent across the border where the French charge 17 per cent VAT. When mourners return, they are charged a further 8 per cent, as human ashes are "material processed by a foreign firm and re-imported as a finished product"
- The highest VAT rate in Europe is 37 per cent charged by Italy on "foreign vintage sparkling wine" ie champagne, but they dare not call it that; if they did, it would be an illegal discriminatory measure specifically aimed against the French
- It is widely believed food is zero rated, but a quarter of all foodstuffs are subject to VAT, including bottled water and chocolate biscuits
- Pornographic magazines are zero rated
- Eat a sandwich standing up on a train and you will pay VAT, but not on a business class lunch on a plane - considered part of the journey
- Jazzman Max Collie argued he should not have to pay tax on his hair transplant because it was integral to his act; he won
- Bull semen is liable to VAT but hiring a bull to service a cow is tax free
- Christmas kisses are not tax free; mistletoe was added to the VAT list in 1995.
And always remember- Jaffa cakes are your best bet in the biscuit line: unlike other biscuits, they're defined as cakes, and so zero-rated for VAT.