This article by Hilary Osborne was first published in The Guardian (“Courtesy of Guardian News & Media Ltd”).
Is a mini poppadom a crisp? Is a Jaffa Cake a biscuit? Is a flapjack confectionery? These are all questions tax officials in the UK have had to wrestle with in the 51 years since VAT was introduced.
The tax, which you pay when you buy goods and services, is charged at three rates: the standard 20%; 5% on child car seats, home energy and some other items; and 0%, which applies to most food, children’s clothes and tampons. But there are strange anomalies. For example, toilet rolls attract 20% VAT but caviar is VAT-free. Last week, toilet roll maker Who Gives a Crap started a campaign for the “roll tax” to end, saying its research showed 70% of people were unaware of the charge.
In the past few years, VAT was taken off tampons and related products following a successful campaign. But experts say the UK has enough zero-rated goods, and creating more would not help the poorest households.
“In the UK it is applied on only about half of overall consumption, which is really low by international standards,” says Professor Rita de la Feria, chair in tax law at Leeds University. “If you look at very progressive societies, they have high levels of VAT collection.” In New Zealand, she says, “there are no zero rates – they tax all consumption”, and the tax collected is returned in support for those on low incomes. She believes making changes to rates in response to campaigns is not helpful. “Politicians should think through a whole package of reforms, instead of little things here and there,” she adds.
For most shoppers, VAT goes under the radar, even though we pay it every day – but the strange quirks might surprise you.
Toilet roll
The Who Gives a Crap campaign is backed by the Hygiene Bank, a charity that helps those on low incomes by providing essential toiletries. Its chief executive, Ruth Brock, says: “Regardless of circumstances, everyone should have access to a toilet roll, a toothbrush, shampoo and nappies.”
But one criticism of campaigns like this is that the money goes back to the businesses, not consumers. An analysis of the impact of removing the “tampon tax” by advisory firm Tax Policy Associates found that, at most, prices were cut by about 1% – so the majority of the savings, worth about £10m a year, are retained by retailers.
Who Gives A Crap says: “If the government listens to our call and zero-rates toilet paper, we are committed to returning the entirety of the savings straight to our customers – and will strongly encourage others to do the same.” De la Feria says cutting VAT is “either benefiting the businesses – particularly big businesses – or those who consume the most, which is those with the most money”…