19 July 2007
One of the first jobs for the new Chancellor of the Exchequer should be to reform the UK’s VAT rules says Simon Newark, VAT Partner at our London office: “The UK’s rules on VAT are incomprehensible to the average taxpayer and far more complex than they need to be”
“Any Government has the obligation to make the method by which they extract money from businesses and individuals simple, straightforward and consistent with broadly accepted policy objectives. Most taxpayers are not engaged in tax avoidance but are treated as harshly and with as much suspicion as serial fraudsters.”
“For an example of needless complexity, just look at the VAT rules on food which completely contradict the Government’s commitment to helping people make healthy choices. Reported in the press recently, but known about by VAT specialist for a very long time, instead of promoting healthy living, the Government’s rules on VAT seem to be encouraging people to eat cream cakes, sugary snacks and junk food all of which are free of VAT.”
“Many other, more healthy items such as cereal bars, slimmers’ biscuits and pure fruit smoothies, do not have any exemption from VAT and are taxed at 17.5%.”
Simon adds: “VAT is, admittedly, a complicated tax but HM Revenue & Customs have put in place sets of pedantic, mind-numbing rules to decide what goods and services should be charged VAT. Their rules may make some obscure sense to an ivory tower economist or tax barrister but, where taxpayers simply want to pay the right amount and get on with running their business, that is not good enough.”
Simon Newark says: “Take the building industry. The VAT rules can often mean that it is cheaper to demolish a building and build a new one than to alter an existing structure. Or, for listed buildings, changing the building is free of VAT whilst repairing and maintaining it in its original state is taxed at the full 17.5%.”
“To be blunt, the current VAT system looks like bureaucracy gone mad!”
Some prime examples of the UK’s strange VAT system are listed below:
| VAT Free | Full VAT |
| Listed buildings - altering the structure benefits from VAT-free building works. In the normal residential sector, it can often be cheaper to demolish a building and build a new one rather than renovate or extend the existing building because of the VAT rules. | Listed buildings - repairing and maintaining them is charged with VAT at 17.5%. |
| Most betting, gambling, lotteries & pornographic magazines | Removal of bulky household waste |
| Jaffa Cakes, chocolate spread, soups | 100% organic fresh fruit smoothies and juices |
| Tea, cocoa, drinking chocolate (but not if bought hot as a ‘take-away’) | No distinction in VAT rating between alcoholic beer, wine and alcohol-free beer, wine and carbonated drinks |
| Marshmallow teacakes | Cereal, muesli and similar bars with honey or other added sweetening matter |
| Milk | Mineral, table and spa waters sold as beverages and fizzy, sugary canned drinks |
| Slimmers’ meal replacement drinks | Slimmers’ meal replacements biscuits wholly or partly covered in chocolate |
| Tortilla chips, corn chips, bagel chips, cocktail cheese savouries and Twiglets? | Potato crisps & rice cakes (not unflavoured rice cakes) |
| Bottle of ice cream topping sauce | Linseed oil and essential oils |
| Cream gateaux, mousse, Baked Alaska | Frozen yoghurt unless unsuitable for consumption when frozen when it is zero-rated |
| Biscuits coated with icing or caramel | Compressed fruit bars |
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