Things you do and don't have to pay VAT on

Chris Torney / 11 January 2016

Do you have to pay VAT on jaffa cakes? We look at some of the things that you have to pay VAT on and some of the things that are exempt.

The subject of VAT (value-added tax) has been in the news recently as campaigners have put pressure on the Government to make women’s sanitary products tax-free.

Until 2000, tampons and similar items were taxed at the full rate of VAT (17.5% at the time, although this has since risen to 20%). From that point, the rate was cut to 5%.

But many people say that HM Revenue & Customs is wrong still to classify these products as “non-essential, luxury items”, and that the tax should be scrapped altogether.

Six taxes you can legally avoid.

What is VAT for?

VAT is added to the price of most goods and services bought by consumers – in other countries it is often known as a sales or consumption tax.

VAT replaced the purchase tax in the UK when the country joined the EEC (now the EU) in 1973. The rate has fluctuated over the years, but it remained at 17.5% between 1991 and 2011, when the coalition government raised it to 20%.

What is VAT charged on?

Not all products incur VAT at the full rate, although most things do. 

As mentioned above, VAT has in the past been seen as a tax on luxury items or things people could perhaps do without, although that distinction is being lost to some extent.

Some items incur VAT at a reduced rate of 5%: as well as sanitary products, these include:

  • Domestic gas and electricity.
  • Energy-saving items such as solar panels.
  • Nicotine patches and other aids to help stop smoking.
  • Children’s car seats.

Five things you might have to pay tax on.

Zero-rated items

As well as the reduced rate, there are a number of products on which no VAT is charged.

These include children’s clothing, books and magazines, and goods sold in charity shops which have been donated by members of the public.

There are several quirks in the VAT system. For example, biscuits incur VAT at the full rate but cakes are exempt; and potato crisps incur 20% VAT but corn-based snacks are VAT-free.

Certain services are also zero-rated for VAT, such as gambling and bingo, sport, medical treatment, and insurance (although many types of policies incur insurance premium tax).

Read more tax articles.

VAT on services

If you pay a company to carry out domestic work, such as decorating or plumbing, you will only have to pay VAT if the firm is registered for the tax. 

Businesses whose annual turnover reaches a certain level must register for VAT, and others can register if they wish.

But this means that by using a non-VAT-registered smaller company or one-man band, you can avoid a 20% increase in your bill.

For more useful information, browse our money articles.

The opinions expressed are those of the author and are not held by Saga unless specifically stated.

The material is for general information only and does not constitute investment, tax, legal, medical or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.