VAT Surprises!

V

The joy that is VAT (Value Added Tax) has been a part of our lives since the UK government first introduced it in 1973.  The standard rate of VAT is currently 20%, but there is also a reduced rate of 5% and a zero rate that can be applied to some items.  Historically, VAT was seen as a tax on ‘luxury’ items with ‘essential items’ being classed as exempt, however there are a few items that may catch you out!  We have compiled a list of the more ‘interesting’ exceptions to the rules:

Chocolate Biscuits        

Bakery products, like bread, biscuits and cakes, are classed as ‘essentials’ under UK VAT rules (I think we can all agree with that!) and are zero-rated. However, biscuits that are covered in chocolate (whether wholly or just partly) are classed as confectionary and are, therefore, deemed as a standard rated ‘luxury item’.  Some odd examples of this rule: 

  • Gingerbread men – if they have chocolate drops for eyes they can be classed as Zero rated, but if there is chocolate anywhere else on their person, they must be standard rated! 
  • Chocolate covered shortbread is subject to the standard rate of VAT, but if you add a layer of caramel and make it a Millionaires Shortbread it’s not!

Children’s Car Seats

With these being an essential safety feature being required by law, you would be forgiven for thinking they would be tax exempt.  However, they are in fact subject to a reduced rate of 5% VAT. This applies to items like safety seats, booster seats, booster cushions and carrycots with restraint straps that may be part of a travel system.  

Ice Cream

Frozen foods are zero-rated, but ice cream, ice lollies, sorbets, etc., are standard rated!  The HMRC explains this by saying that this is because they are designed to be eaten whilst frozen.  Only foods that have to be cooked or fully thawed before being consumed can fall under the zero-rated category.

Hot Takeaways

Cold takeaway foods and drinks are zero-rated, but hot takeaway food and drinks are classed as standard rated.  Hot takeaways have VAT applied if the food is hot at the time it is provided and one or more of the following tests are satisfied:

  • It has been heated for the purposes of enabling it to be consumed hot
  • It has been heated to order
  • It has been kept hot after heating
  • It is served to the customer in packaging that retains heat or has been specifically designed for hot food
  • It is advertised / marketed in a way that indicates that it is supplied hot 

So warm sausage rolls that have been cooked and are in the process of cooling down are zero-rated, but a toasted sandwich would be standard rated. Confused yet?

The best of the rest:

  • Goods that are stolen from a shop are notsubject to VAT, but stolen cash is…
  • Sales of counterfeit goods aresubject to VAT, but counterfeit cash isn’t…
  • Orange squash and poodle food are classed as ‘luxuries’ and are standard rated, but caviar and Labrador food aren’t and so are zero-rated!
  • Ferrets are considered pets under VAT ruling, but rabbits are not
  • Physical publications, newspapers, books, magazines, etc. are exempt from VAT – but eBooks aren’t
  • Potato snacks are subject to standard rated VAT, but maize and corn-based alternatives are not!  
  • Nuts sold with their shells on, like pistachios, are zero-rated.  However, once they have been de-shelled, they are subject to the standard rate of VAT!