VAT turns 50!

VAT was introduced to the UK tax system on 1st April 1973 – so it's just had its 50^th birthday – or golden jubilee. I'm not sure many people will be celebrating, but VAT has spawned many a ridiculous story to keep us amused over the years.

• There is the long-running debate over the status of a Jaffa Cake – is it a cake or a biscuit? Believe it or not cakes are considered items in a staple diet (zero VAT rated), but biscuits are luxury foods and VAT is payable. Jaffa cakes are packaged like biscuits and the initial ruling was that they were, therefore, biscuits. However, at appeal the manufacturers proved that they went stale in the same way as cakes, not biscuits and the ruling was overturned – so a Jaffa Cake is a CAKE!
• Then there was the pasty tax. Back in 2012 the Chancellor decided that hot takeaway food was subject to 20% VAT, despite most takeaway food being zero rated. A complicated war between bakeries and the HMRC ensued with arguments about whether a pasty (or other pastry) was hot because it happened to be in the process of cooling down or was being kept hot and sold as hot food. A couple of years of argument later and the tax rules were amended.
• What about the powdered drink Nesquik? If you buy the chocolate flavour it's VAT free, but banana and strawberry flavours are VAT rated. 

These are just the tip of the iceberg of silliness in relation to VAT rules.

Of course, there is always someone who will try and get around the rules by bending them to the point of breaking. Even recently during the pandemic:

• A company offering driving training to under 17s, decided that changing 'driving training' to 'driving experiences' would qualify the services for the 5% VAT rate that had been created for the hospitality industry, specifically, in this case, as a 'cultural event' during the period of the pandemic.

HMRC didn't have a definitive answer to the question when asked, but when they received a written application for a tax refund, they refused as a change of name didn't change the actual service. To add insult to injury they then looked at the company's records and hit them with a VAT bill of more than £125K!

When new VAT rules are created, they're rarely simple and are often vague, to say the least. The result is that things have to go to court so case law is established to clarify the situation. You'd be surprised at how many court cases are argued over whether or not VAT is payable, even 50 years on.

Blame the French!

The French started it all when they invented VAT back in the 1950s and it spread throughout Europe as the European Economic Union was created in 1967. 

Now we've left the EU, it could be argued that it's time to thumb our nose at the French and demolish the VAT system, but in reality that's not going to happen.

The government's coffers have to be filled one way or another, it VAT is abolished something would need to replace it, whether it's something along the lines of the US system of a General Sales Tax or a completely new system with a new set of rules we would all have to try to understand.