VAT trail that led to Rishi’s half-price dishies

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The source of our VAT rules?
Photo credit: Fedor Ouspenski

Let me share a state secret with you. Somewhere in Mayfair is a six-star hotel where once a month a group of middle-aged men along with a couple of token women gather in its basement. They wear silk and ermine robes, eat exquisite food and sip the finest wine. This Body of Souls (BOS) consults The Book of Runes and Ancient Spells and then in their wisdom pronounce on Value Added Tax (VAT). Below is a small extract of some of their decisions. 

  • Vitamins and minerals are essential to health, but are not food, therefore, carry the standard rate of VAT (20 per cent).
  • The same applies to pet vitamins and supplements. However, one needs to decide what is a pet. Dogs are, but not guide dogs. The Book offers no guidance on hearing dogs or racing greyhounds. Rabbits are not pets, they are food. So are koi carp. Reptiles are food, not pets. But no guidance on pangolins.
  • Standard rate on kangaroo meat, but not on horse meat. Harder to catch?
  • 5 per cent to be charged on mobility aids and children’s car seats. Why tax them at all?
  • A reduction to 5 per cent on sanitary towels, maternity pads and contraceptives. Ditto.
  • 5 per cent on solar panels, wind turbines, gas, electricity, heating oil and solid fuel. No real incentive to go green.
Vitamin tablets are not food – so carry the standard rate of VAT.

Now the Chancellor Rishi Sunak has asked the BOS to include in the Book the ‘Eat Out to Help Out’ scheme. While it is true the Body of Souls enjoys fine wining and dining, what were they smoking when they approved this one? On the one hand Boris wants us all to slim down, but this scheme seems designed to pork us all up. Have you ever seen an empty McDonald’s outside of lockdown? Customers can get £5 off for a £10 meal and soft drink, Monday, Tuesday and Wednesday during August. Businesses for their part have been told that under the scheme they can claim back VAT. 

So what is Rishi giving back? To the end user a bulging waistline; to the business, a headache and an empty eatery for the rest of the week.

The predecessor of VAT was Purchase Tax, brought in during the war and adding 33.33 per cent to the wholesale price of luxury materials. Its intention was to reduce the consumption of these materials and to divert labour resources to areas more necessary for the war effort. The rates and targets changed many times, but immediately arguments started as to what was considered a luxury. One person’s luxury could be considered another’s essential. 

It is an ongoing argument I have with Her Majesty’s Revenue and Customs (HMRC) regarding the bottle of wine to be included in an employee’s Christmas box. They designate a table wine from a supermarket; I say, the occasion is special, therefore a Cru Bourgeois is the minimum requirement. Should it be even called a ‘Christmas box’ at all? 

VAT replaced Purchase Tax on 21 April 1973 so that we could climb into bed with our EU buddies. As a fresh-faced articled clerk in a City firm of chartered accountants I had to make a presentation on this new tax to my work fellows.

Firstly, I told them, it was an end user or consumer tax and it targeted both goods and services, whether luxury or not. So if you bought a pen for say 50p, a 10 per cent tax was added, making the pen 55p. It was fair; you were in control: you could buy a cheaper pen, after all. The rates have varied from 5 to 20 per cent ever since, with differing rates on some goods or services since then.

Secondly, it had an ingenious system of inputs and outputs, so that everyone in the supply chain could recover their input VAT on purchases right up to the end user – that’s you and me – who ultimately bore the tax. The VAT registered trader simply acted as a collector of the tax. Later, simplified (flat-rate) schemes were introduced for smaller traders. 

Thirdly, as an ad valorem tax it would be levied after importation and customs duty on imports. But there would be no customs duty or VAT from our EU neighbours on the initial import/export.

Naturally, post-Brexit, there will be changes.

Meanwhile, beware particularly when buying on the internet from suppliers outside the EU who charge VAT. They need to show they are VAT-registered, with a VAT number and address, in order to charge VAT. It’s worth phoning the VAT Helpline to check on them.

Finally, certain categories have been declared exempt (no VAT on goods or services) or zero-rated (no VAT being currently charged). In simple terms, anything unavoidable and essential to life, would be exempt. The list is obvious, up to a point: it includes, among other things, water, food, shelter, travel, education, books, newspapers, medicine, medical services, financial services, loan interest and funerals. Nice and simple, fair and easy you’d think, but no. Over the years legislative creep and the rapaciousness of the Exchequer have taken their hold. The edicts of the sacred Book of Runes and Ancient Spells (Volume One) The Essentials of Life are now beginning to be taxed.

Anyway, if you think The Body of Souls are strange, wait till you meet The Society of The Six Nomenclatures who pronounce on customs duty. Very strange, and after Brexit set to become stranger still.

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