What you do and surprisingly don't pay VAT on

As consumers we pay Value Added Tax (VAT) on the majority of products we purchase, which is currently added to purchases at the standard rate of 20%. However, there are certain products which the government has identified as “essentials” which are either taxed at Reduced-Rate VAT or are VAT Exempt.

Here is a list of 'essential' products you either pay a small percentage or no VAT at all on:

Reduced – Rate VAT (5%)

Historically, VAT has been seen as a tax on 'luxuries' – yet many of the items below are subject to this tax although viewed by most of consumers as day-to-day essentials.

 1)    Women's Sanitary and Maternity products – a petition to end the so called 5% “period tax” has hit more than 200,000 signatures, however because of EU rules it is unlikely to be successful. In 2000 the VAT on sanitary products was dropped from 17.5% to 5%, standardised EU taxes mean that the rate cannot drop below 5%.

2)     Mobility Aids for the Elderly – People over 60 pay 5% on items such as grab rails, stair lifts and walk-in baths as long as they are bought and installed in a private home. If this criteria is not met, then the full 20% VAT is paid.

3)     Smoking Cessation Products – Nicotine patches, gums and inhalators to help you quit smoking are all subject to a 5% tax, however, if prescribed by a GP they are exempt from tax.

4)     Solar Panels – Energy saving materials installed in a personal home or business premises are subject to the 5% reduced rate VAT.

5)    Children’s Car Seats – HMRC states that the 5% rate is applied to children's car seats, booster chairs and booster cushions. This also applies to carry cots with restraint straps, but not prams or pushchairs which are sold at standard rate VAT.

 VAT Free

Below we list some of the items which are free from a VAT charge, some of which may surprise you.

 1)   Caravans – As long as they are less than 6 meters long and 2.55 meters wide, caravans are tax free to buy. The Government tried to change this in the previous budget by imposing a tax on caravans to generate an extra £30 million pounds, but it was decided that this would only be neutralised by the job losses and unemployment as a consequence of imposing the tax.

3)   Betting and Gaming - This includes pool betting, games of chance, the lottery, bingo and all retailer commission on ticket sales.

4)   Funeral Plans - Written under a contract of insurance, these are tax exempt, this also includes burial or cremation of dead people, or burial at sea.

5)     Helmets – Cycle helmets which are marked with CE, motorcycle helmets which meet safety standards and protective helmets used for industrial use are all VAT free.

6)     Jaffa Cakes – While cakes are zero rated VAT, luxury biscuits are subject to to the full standard rate. The manufacturer of Jaffa Cakes, McVities famously won a tribunal over HMRC claiming that they were indeed small cakes and not luxury biscuits and so should be sold at zero rated VAT.

As consumers we are subject to VAT charges on the majority of the products we buy day-to-day, but what is really confusing is how the government has perceived what products are essential and what are luxuries to us. The way in which the government has divided “essential” products into these two tax groups has been heavily debated and criticised by the public and in the media. To an extent we are governed by EU regulations (why the 5% tax on sanitary products can't be reduced) however, common sense should prevail. Without turning the UK into a 'Nanny State', perhaps it is time to start taxing products like gambling, helicopters and Jaffa Cakes and balance the scales by making lower value and more essential products VAT exempt.

What are your thoughts?