October, 2013

What you do and don’t pay VAT on

Value Added Tax (VAT) is a tax that all of us pay. It is a tax on consumer spending and it is automatically added to goods and services that you buy. And, you pay VAT on a wide range of items from clothes to restaurant meals.

VAT is currently charged at a rate of 20 per cent and is expected to raise the staggering sum of £100 billion for the Treasury in 2013. But, what do you pay VAT on? What goods and services are exempt from VAT? And what attracts the reduced rate of VAT? Keep reading for the answers to all these questions – and we also look at why you’ll pay VAT on crisps but not tortilla chips.

What you do pay VAT on

VAT is charged on a huge range of items – from clothes and cars to big ticket electrical items. Most goods and services in the UK attract VAT at the standard rate – currently 20 per cent. Most of the time, VAT is included in the price of an item in a shop. For example, a pair of shoes priced in a major retailer at £50 will include VAT of 20% (£10).

What you don’t pay VAT on

There are a range of items are zero-rated for VAT or are exempt from the tax. This means that you don’t have to pay VAT on them. Items that are zero-rated for VAT include:

• Books, magazines and newspapers
• The water supplied to your home
• Medical treatment and health care
• Printed music
• Bingo
• Baby wear
• Lotteries
• Children’s clothing and footwear
• Postage stamps
• Goods donated and sold in charity shops
• Betting/gaming
• Burial or cremation costs

The reduced VAT rate

VAT was introduced as a tax on ‘luxuries’ however many of the items now subject to the tax are viewed by most people as essentials. However, some items attract VAT at a considerably reduced rate of 5 per cent. You will pay 5% VAT on:

• Domestic gas and electricity and heating oil/solid fuel for domestic use
• Items to help you to stop smoking such as nicotine patches
• Children’s car seats
• Women’s sanitary products
• Heating oil and fuel
• Mobility aids for the elderly

 

Paying VAT on food

Food and drink for human consumption is, in general, zero-rated. However, you do pay standard rate VAT (20%) on a range of items including alcoholic drinks, confectionery, crisps and savoury snacks, hot food, sports drinks, supplies of food made in the course of catering including hot takeaways, ice cream, soft drinks and mineral water.

There are also a number of odd discrepancies where you can pay VAT on some types of food but not others. For example, you will pay VAT on shelled nuts but nuts in their shells are VAT free.

 

Foods that you do pay VAT on… …and foods that you don’t pay VAT on
Wholly or partly chocolate covered biscuits Chocolate chip biscuits
Sorbet Cream gateaux and mousse
Chocolate bar Chocolate spread
Flavourings for milk shake Milkshake
Arctic roll Jaffa cakes
Potato crisps Tortilla or corn chips
Roasted/salted nuts without shells Roasted/salted nuts in shells (monkey nuts, pistachios)
Cold take-away food Hot take-away food
Luxury biscuits Cakes