Can you avoid paying VAT?

If you only pay VAT on luxuries, then surely it should be easy to avoid paying it?

If you need to economise in a hurry then you'll probably decide to ditch the luxuries first.

But the line between luxury and necessity is getting blurred: I think that my mobile phone is a necessity but my mother made it 60-odd years without one. I wouldn't want to picture life without a home internet connection, but plenty of people access the web at their local library, or even go without.

So I needed some independent way of separating luxuries from necessities. I decided that if Value Added Tax (VAT) is a levy on luxuries then it must a good place to start. How long could I make it without paying VAT?

What's exempt?

There are several VAT positions — standard rate of 20%, a reduced rate of 5%, zero-rated goods and things that are exempt.

It's not immediately obvious what qualifies for a VAT exemption or the 0% rate. The only stories that tend to make it into the press are the ridiculous, like Jaffa Cakes fighting to be exempt (VAT is charged on chocolate-covered biscuits but not chocolate-covered cakes; McVities successfully argued that Jaffa Cakes are cakes).

The HM Revenue & Customs website gives you a pretty thorough breakdown: You don't pay VAT on most food items; books, newspapers and magazines; children's clothes; and some goods provided in special circumstances - for example, some specialist equipment for disabled people. You also don't pay VAT when you buy donated goods in charity shops.

I took some comfort from the fact that you don't pay VAT on burial and cremation services. Death and taxes might be the only certainties in life, but at least you get a bit of a tax break when you do shuffle off.

[See also: The madness of VAT exemptions]

The VAT-free challenge

OK, I failed. Even if you ignore heating my home, for which we're all charged a reduced rate of 5%, I didn't manage two days, let alone the week I had aimed for.

It started off quite well: I had to go and kit my baby out for the colder weather — no VAT to pay on his new coat and hat. I wanted to pick up his Christmas present while I was there — but the Grinch, I mean, tax man, charges standard rate VAT on toys.

Then I headed to the supermarket for the big weekly shop. This was far trickier. Baby supplies and most foods are zero rated, but I had to avoid any booze, sweets, crisps, ice cream or soft drinks. I started to worry that this penny pinching challenge was going to upset my husband again.

But I managed to buy a treat and avoid VAT by choosing tortilla chips instead of potato crisps. For some reason, they are zero-rated.

I bought a takeaway lunch in the supermarket café so I could feed my baby in the car, and nearly slipped up again. The jacket potato with cheese was subject to standard rate VAT because it was hot, while a cheese baguette wasn't because it was cold. It's hard to see how the spud is more of a luxury.

Rather bizarrely, if I'd wanted to buy a lottery ticket as I left the shop then that too would have been exempt from VAT.

How I failed

Even on the first day, going VAT-free started to feel a bit like my minimum wage challenge. I wasn't missing just a few essentials; I had to avoid spending pretty much anything in order to avoid the tax.

The final straw was when it cost more to avoid VAT than to pay it. I needed to fill up my car in order to visit my mother, two hours away. I could have taken the train, as you're not charged VAT on public transport.

But the train costs £10 more than my petrol does and spending more in order to avoid VAT didn't feel like penny pinching to me.

I refuelled my car and paid the standard rate of VAT on the total cost, including the fuel duty. My great VAT-free experiment had ground to a halt.

[See also: Life on minimum wage]

An everything tax

Perhaps one reason that I struggled so much with this challenge is that it just isn't possible to avoid VAT all the time — it's charged on too many items and services that many people simply need.

Despite widespread belief that VAT is a tax on luxuries, I can't find anything on the or HMRC websites that agree. They both state that VAT is levied against 'most goods and services', and clearly there are plenty of essentials, like adult clothing, that get taxed this way.

In fact, by the end of my two-day stint, I agreed wholeheartedly with a recent article on this site. VAT really is the stupidest tax in the UK and penny pinchers are best off prioritising their own luxuries and necessities.

Felicity is Yahoo! Finance's money-saving columnist. If you have a money-saving scheme you'd like to see tried out then let us know in the comment box below.

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