VAT on electronic cigarettes

VAT on electronic cigarettes

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Just wondering about electronic cigarettes and whether they're zero rated under the "smoking cessation product" VAT zero rating rules.

The rules refer to gums, patches, etc., but no mention of E cigarettes.

Would E-cigs be regarded as a smoking cessation product, or are they simply a means of "smoking" in restricted areas.

I can't find anything definitive via internet searches - nothing at all on HRMC website to say one way or another. It's mentioned in passing on E-cig websites and forums, but that's not really compelling evidence as it looks more to be heresay than fact.

Anyone got any definitive references they could share?

Replies (18)

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By Steve Kesby
30th Apr 2013 11:36

The legislation

Refers to "supplies of pharmaceutical products designed to help people stop smoking tobacco". So electronic cigarettes would be standard rated.

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Replying to Bobbo:
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By mali4002
02nd May 2013 18:33

VAT for E Cigarettes
Hi Steve,
Just read your comments and e cigarettes are inhalers and people inhale them and I have confirmed twice from HMRC and clearly ask them VAT rate for e cigarettes and they came that it is reduced rate of 5%. Could you please advise.
Regards

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By ver1tate
30th Apr 2013 13:08

Anyone got any definitive references they could share?

I have a number of clients who sell this product, sourced from various suppliers, and they all charge VAT. So they are also retailed plus VAT.

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By sharon_phillips
30th Apr 2013 13:18

I had been advised that the sale of e-cigarettes was subject to VATat 5% - according to BN77 - http://www.hmrc.gov.uk/budget2008/bn77.pdf  .  Is that incorrect?

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By Steve Kesby
30th Apr 2013 13:53

Pharmaceutical?

BN77 says,

 

6. The reduced rate of 5 per cent has effect for all other supplies of pharmaceutical smoking cessation products, including supplies made over the internet. This includes all non-prescribed sales of patches, gums, inhalators and other pharmaceutical products held out for sale for the primary purpose of helping people to quit smoking.

I'd understood electroninc cigarettes to not have anything chemical in them other than H2O.

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Replying to Portia Nina Levin:
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By mali4002
02nd May 2013 18:37

VAT rate
Hi Steve,
Just read your comments and e cigarettes are inhalers and people inhale them and I have confirmed twice from HMRC and clearly ask them VAT rate for e cigarettes and they came that it is reduced rate of 5%. Could you please advise.
Regards

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By ver1tate
01st May 2013 09:52

sharon_phillips

The manufacturers charge my client VAT at 20%, and I would assume they have had many meetings with the VAT to try and get the rate reduced to that of a n aid to stopping smoking.

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By Steve Kesby
03rd May 2013 10:24

Unless...

... you have HMRC's advice in writing it |can't be relied upon. The definition in my first post, is taken from the legislation (VATA 1994, Sch 7A Group 11, Item 1).

Having done some research there do seem to be two varieties of product, and some of them enable nicotine to be inhaled, which would then be a pharmaceutical product (one would hope, otherwise it might be dangerous, because nicotine's a powerful toxin).

If the electronic cigarettes in question are pharmaceutical producst, then they're lower-rated. If people are just inhaling flavoured steam though (no nicotine), they're not a pharmaceutical products, and they're standard-rated.

 

 

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Replying to johngroganjga:
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By mali4002
03rd May 2013 11:38

Electronic cigarette
Thanks for reply and all electronic cigarette got nicotine on them and depends the strengths from 0-24 mg and different flavours. We got the reference from them, they gave us for corresponding. Please advise

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Replying to KPEM online:
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By hashmiuw
10th Dec 2013 18:38

RE: VAT on E cigs

Hi Mali 4002

With reference to your post on e - cig reduced rate VAT can you please advise if it is 5 % o 20 % as per your discussions with HMRC ?

Thank ......

 

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Replying to johngroganjga:
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By mali4002
03rd May 2013 12:00

Thanks for reply and all electronic cigarette got nicotine on them and depends the strengths from 0-24 mg and different flavours. We got the reference from HMRC, they gave us for corresponding. Please advise

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By mali4002
03rd May 2013 14:06

VAT FOR E CIGARETTE
Hi Steve,

Thanks for reply and all electronic cigarette got nicotine on them and depends the strengths from 0-24 mg and different flavours. We got the reference from HMRC, they gave us for corresponding. Please advise
Kind Regards

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Replying to Chris Smail:
Woolpit Gus
By nutwood
03rd May 2013 14:37

Not marketed as an aid to quitting smoking

e cigarettes are not held out to be an aid to stopping smoking, that's why they don't qualify for reduced rate.  The following is what is said on the website of one major brand:

......are not intended as nicotine replacement therapy nor are they a cessation device. ......... contain no tar or tobacco . ........ are intended for use by existing smokers aged 18 or over as an alternative to tobacco cigarettes. Not to be used by children, pregnant or breast feeding women or persons in ill health. ........ contain nicotine which is an addictive drug. If unsure of use please consult your doctor.

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By Steve Kesby
04th May 2013 10:48

Agreed

I agree that (as per the paragraph quoted from BN77 above) it's a two part test:

pharmaceutical product,held out for sale for the primary purpose of helping people quit smoking.

The legislation goes further and says that it needs to be designed for the purpose of helping people stop smoking. If the manufacturer says that isn't what the product is intended for, that's likely to be fatal.

I'd be uncomfortable about relying on anything given by HMRC if it isn't in writing. Is the reference you have to the call that you made, which was recorded? If so, how long are the recordings retained?

Make sure you have a record of who you spoke to, when, what time etc. What you told them (exactly - because if you misdescribed the product to them, it again won't help the position) and what they told you. However, that will only protect you from penalties. You really do need a written ruling to be sure that HMRC can't require you to account for the correct liability retrospectively.

See HERE, particularly the section on incorrect advice from HMRC. You need to be able to show that the incorrect advice is clear, unequivocal and explicit and that you'd made a clear disclosure of all the relevant facts.

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By mali4002
04th May 2013 10:36

Thanks

Hi Steve,

Thanks for your kind replies and my 1st returns are due at the end of June and I just spoke with HMRC yesterday and particularly asked for e cigarettes and they said 5%. I am very confuse now what should I do? Being a small business it is very difficult to handle this. Please advise

Regards 

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Replying to slarti:
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By cparker87
06th May 2013 10:52

Separate Inputs and Outputs

fawltybasil2575 wrote:

@ Steve Kesby. 

Would you agree that it is essential for a VAT-registered trader ( let us assume for the purpose that he/she is a retailer) who sells products of this type ( in reality this applies to any products where he /she is unsure of the rate of VAT to be applied to the sale) to first look at the VAT rate shown on his/her purchase invoices -  and to then to ask the supplier to prove that the correct rate has been applied on the purchase invoices ( the best evidence of which would be copies of correspondence between the supplier and HMRC)  ? 

Part of the reasoning for this approach is that if (say) the supplier has added  20%  purported "VAT", but in circumstances where only (say) 5% "VAT" should have been applied, then the supposed "VAT" of 20% is not in reality VAT at all ( despite its being described as such on the purchase invoices) ; and as such cannot be recovered as Input Tax at all ?

Thanks.   Basil

 

 

I'm confused about the several references to the supplier/manufacturer/wholesaler's liability to VAT being decisive on a retailer's Output VAT position. If your supplier was not VAT registered you wouldn't simply not charge Output VAT. They are separate considerations. In my view, this is a fundamental principle of VAT.

Take solar panels, buy wholesale to install for an end user, 20% VAT charged. Install on residential premises, 5% VAT charged. There are plenty of other examples.

Now if your input VAT has been overcharged then yes, you may have an issue with recovering the full Input VAT.

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By Steve Kesby
06th May 2013 11:10

Agreed

If VAT has been overcharged, then technically it isn't recoverable. However, HMRC do generally take a pragmatic approach where there has been a genuine error which hasn't resulted in any loss to the Exchequer.

As Chris says, the liability of the supply for a manufacturer or wholesaler isn't always necessarily determinative.

I think in the case of electronic cigarettes that doesn't apply though, since the legislation doesn't require a smoking cessation product to be supplied to the end user to qualify for lower rating; the focus is simply on what the product is designed for.

If the manufacturer doesn't consider that the product has been designed to help people stop smoking that may be determinative.

I don't think it's practicable, however, to let the wheels of commerce grind to a halt, while a ruling from HMRC is sought. If the manufacturer's case holds up against the legislation, then I think you more need to rely on the pragmatism I refer to in my first paragraph.

There's clearly a case for airing on the side of caution with such a product, and I suppose that's why manufacturers make statements like the one that nutwood has quoted.

Certainly though, I think before lower-rating is applied something in writing should be obtained from HMRC.

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By Siany
20th Jun 2015 11:17

5% Vat

http://www.morganjones.co.uk/2014/03/7-products-subject-to-reduced-vat/

 

I too have an email from a HMRC Vat representative stating that Ecigs are 5% vat along with the vapour liquid containing nicotine.  Any other flavoured vapours not having nicotine content are standard rated.  I have heard that the government are proposing 80% vat on ecigs! :-/

 

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