Five facts you didn’t know about VAT

Value Added Tax or VAT, as it is more commonly known, has been applied to the purchase of goods and services in the UK for over 45 years. Declan McCusker from Perrys Chartered Accountants in London talks us through five facts about VAT you might not be aware of.

• VAT is the third largest source of government revenue after income tax and National Insurance, generating £125.3 billion in 2017/18. While it might mean your biscuits are a bit more expensive to buy, and there’s a little less revenue in the coffers for confectionery, it all helps to contribute towards keeping the country’s services running.
• If you’re keen on cultural activities, the good news is that admission charges by public authorities or eligible cultural bodies to certain events, such as visits to museums, art exhibitions, zoos and performances are all VAT exempt.
• Although our current VAT rate is 20% for most goods and services, some are offered at a reduced rate of 5%. These include electricity, gas, heating oil and solid fuel for domestic and residential users, or for any non-business use or charities. Other items offered at the 5% reduced rate include baby carrycots, children’s car seats and mobility aids for the elderly.
• Fancy buying a new helicopter or having a flutter on the footie? It might be surprising to some, but both purchases are exempt from VAT. Other vehicles included in the 0% VAT tariff include airships, certain sizes of caravan, civil aeroplanes, houseboats, military aeroplanes, and ships weighing 15 tonnes or more. Bingo, lottery ticket sales, and online lottery games are also VAT free.
• Some of the most famous tax rebate court cases in recent years have involved understanding the intricate differences between cakes and confectionery. Aside from the well-known case for Jaffa Cakes, in 2014 two judges ruled that Hostess Snoballs were in fact cakes too after undertaking a courtroom taste test. Crucially, cakes, unlike standard-rated confectionery, are VAT exempt. The court ruled in favour of its producers, Lees of Scotland and Tunnock’s, which received a £2.8 million VAT rebate. Meanwhile, a case brought by Pringles’ producers, Proctor & Gamble, claimed that the famous snack could not be classed as VAT chargeable crisps because they contain only 42 per cent potato. Despite winning its case, a court of appeal overruled the decision the following year.