Charges for loo roll, none for caviar: strange quirks of the UK’s VAT rules | Tax

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”.

Most toiletries are standard-rated, “with notable exceptions for sanitary products, zero-rated since 1 January 2021, and contraceptives at 5% reduced rate,” says Alan Pearce, a partner and VAT expert at advisory firm Blick Rothenberg.

Biscuits

These are zero-rated, but as soon as the makers start covering them with chocolate they attract 20% VAT.

This was at the heart of the Jaffa Cakes case, which came to a head in 1991. HM Customs & Excise (the predecessor of HMRC) said they were biscuits, and that their chocolatey topping meant they attracted tax. Manufacturer McVitie’s insisted they were cakes, which are zero-rated. It won, and those smashing orangey bits can be enjoyed tax-free.

Teacakes – of the marshmallow variety – were classified as biscuits until Marks & Spencer won a 13-year battle to classify them as cakes. Now they are zero-rated.

Perhaps surprisingly, the chocolate – real or ersatz – has to be on the biscuit, not inside it. So digestives and the like attract 20% VAT while chocolate chip cookies and bourbons are zero-rated.

Meanwhile, HMRC says ­flapjacks are only cakes when made in the traditional way, with oats, butter and syrup. If protein or vitamins are added, they constitute confectionery, and are standard-rated.

Crisps

“Potato crisps are regarded as confectionery, so subject to VAT,” says Pearce. But other snacks you might regard as similar may not be. Take tortilla chips: they are zero-rated.

Pearce explains: “Standard rate only applies to potato-based crisps and other savoury products made by swelling cereals or cereal products – for example Hula Hoops, Monster Munch and many more. Tortilla chips fall outside the definition contained in the VAT Act.”

When Walkers went to the tax tribunal about its mini poppadoms, it argued they should not be classed as crisps because they were not made from potato, and required preparation before consumption, as they were designed for dipping in sauces.

However the tribunal found that 40% of the ingredients came from potatoes and Walkers lost.

The judges said: “Nominative determinism is not a characteristic of snack foods: calling a snack food Hula Hoops does not mean that one could twirl that product around one’s midriff, nor is Monster Munch generally reserved as a food for monsters.”

A similar ruling was made on Pringles in 2009.

Caviar

The status of caviar is often cited by campaigners against VAT on other products: it is zero-rated as a food.

It is sometimes said that the things attracting 20% VAT are deemed luxuries, and that the zero-rating applies to essentials.

This seems to be a hangover from the luxury tax pre-dating VAT’s introduction in 1973. De la Feria says many of the distinctions were imported from that regime, but VAT is not a luxury tax.

Nuts

Confusing rules? They have nothing on nuts. Those sold for human consumption are zero-rated if in their shells; if shelled they are zero-rated unless roasted or salted – then they attract 20%. However, roasting is not the same as toasting – toasted hazelnuts for baking are zero-rated.

Peanuts packaged as bird food attract 20% VAT, unless they are bought loose or the bag weighs more than 12.5kg.

Exemptions from paying

If, for example, you buy a wig or hairpiece because of a medical condition, or treatment such as chemotherapy, you do not need to pay VAT on it. Same with post-surgery bras after breast surgery.

There is also VAT relief on a range of items designed to make your home easier to live in if you have a medical condition. In some cases this extends to people over 60. A retailer will tell you if there is a possible exemption and you will need to fill in a form to say you qualify.