In the third part of our series ’52 Ways to Save Tax’ we look at a way that you can cut your tax bill by taking more care when you’re buying goods and services. Keep reading to find out how going VAT free can reduce your tax bill and save you hundreds of pounds a year.
52 Ways to Save Tax – Part 3 : Go VAT free
If you buy goods and services then the chances are that you will pay Value Added Tax (VAT). VAT is charged on a wide range of items from the groceries you buy at the supermarket to services such as plumbing and car repairs.
In 2013, the tax raised a staggering £100 billion for the Treasury. Charged at 20 per cent, if you pay VAT on items it increases the cost of your goods and services by a fifth. So, buying items that don’t charge VAT can help you save a significant amount in tax.
Keep reading for our tips on how to save tax by paying less VAT.
Use small businesses
Businesses have to register for VAT if their annual turnover is above the registration threshold of £81,000. This means that any small or medium sized business that has a turnover of over £81,000 has to add the 20 per cent VAT charge to the cost of their goods and services.
Smaller businesses with a lower turnover aren’t liable for VAT and so do not have to charge the 20 per cent tax. So, if you have a choice between a larger or a smaller business it can pay to choose a small, independent business so you don’t pay the VAT.
Here’s an example. If you need a plumber to come and fix your washing machine, a local sole trader who is exempt from VAT may charge you £200.
If a larger, national business charged you £200 for the same service you may well have to pay VAT on top of this. In this case that would be 20 per cent, or £40, making the total cost of the work £240.
By using a smaller business you can avoid paying VAT and, in this example, save yourself £40.
Change the shopping in your trolley
The rules for VAT on food and drink are complicated. A spokesman for the website mysupermarket.co.uk says: “There are some strange discrepancies between the types of foods that qualify for VAT. By making some smart decisions, consumers can avoid paying VAT on a lot of convenience foods.
“For instance, a gingerbread man decorated with two chocolate eyes is exempt from VAT, but if it contains any more chocolate, standard-rated VAT is charged. Likewise, unshelled salted nuts are exempt, but shelled salted nuts are not.”
Switching from products that attract VAT to those in the zero-rated bracket can save you money. Examples of switches you can make include:
- Chocolate chip biscuits are VAT free while chocolate coated biscuits are not
- Tortilla or corn chips are VAT free while potato crisps are not
- Jaffa cakes are VAT free while arctic rolls are not
- Mousse is VAT free while sorbet is not
- Milk shake is VAT free while flavourings for milk shake are not
You could also make your own fruit smoothies (as there is no VAT on the ingredients) whereas VAT is payable on pre-made smoothie drinks.