Yahoo Finance VAT: 12 of the oddest tax rules explained
VAT recently celebrated its 50th birthday in the UK. Over the years it’s certainly grown into an impressive beast — raking in almost £160bn in the year to March and accounting for roughly one in every six pounds we pay in tax.
However, it’s hardly a sensible and mature tax. The fact it has its origins in the 1940 purchase tax means there’s a heavy emphasis on ruling out anything considered vaguely luxurious or wasteful and, as a result, we’re left with a series of bizarre and archaic rules.
Read more: Forget about getting rich quick, getting rich slowly is better
So to celebrate the 50th anniversary of the tax, here are 12 of the oddest.
Popcorn
Popcorn is taxed at 20% VAT while microwavable popcorn is taxed at 0%.
This is because the law specifically states that anything that’s puffed up is needlessly luxurious.
Chocolate biscuits
Biscuits that have the chocolate chips pressed into the dough, face 0% VAT, while chocolate-covered biscuits are taxed at 20%. This is because the rules specifically refer to the covering as taxable.
Gingerbread men
Gingerbread men with chocolate eyes are VAT free but those with a chocolate belt are taxed at 20%.
Read more: Property: How to sell your house in a slow market
Essentially any fancy chocolate decorations covering more than 1% of the surface are considered a luxury and therefore subject to VAT.
Cakes
Cake is considered part of the basic necessities of life, so cakes aren’t taxed — even when covered in chocolate.
This led to the famous case of the Jaffa Cake, which was eventually ruled to be a cake and therefore zero-rated, largely because it goes hard when stale — like a cake, and not soft — like a biscuit.
Flapjack
You don’t pay VAT on the flapjack you buy in the vending machine in the corridor at work (because it’s considered to be a cake you take away and eat elsewhere), but you pay 20% on the one from the machine in the canteen (because it’s assumed to be part of the catering).
Crisps
Potato crisps are taxed at 20%, but there’s no VAT on crispy snacks made from other things like tortilla chips or twiglets.
Dried fruit and nuts
Dried fruit or nuts sold in the bakery aisle are tax-free cooking ingredients. Those sold with snacks or confectionary are taxed at 20%.
Pasties
If a pasty is cooked and left in a cabinet to cool down, then it can be sold while it’s still warm without tax.
However, if it's cooked it to order, sold as ‘hot’, the cabinet is heated, or it is put it in a foil-lined bag, it’s taxed at 20%.
Pets
If you buy a gerbil in a pet shop you’ll pay tax on it. If you buy a rabbit, you’ll pay no tax on it, because the taxman classes rabbits as food.
Tips
If a service charge is included on a bill there’s 20% tax on it, whereas a tip that’s freely given is tax free.
Watch: Sunak challenged over ‘spectacular own goal’ of VAT rule post-Brexit
Download the Yahoo Finance app, available for Apple and Android.
