Europe wants to end UK's VAT breaks

The "Pasty Tax" furore

"The "pasty tax" backlash that followed the 2012 Budget probably set back the cause of VAT reform".

I quite agree. I think that the lesson that this and future governments will have learnt from that episode is that attempting to reform the law relating to VAT on food, is politically toxic, and should be avoided at all costs.

So it seems likely the quirky VAT cases about Jaffa Cakes, Lipton Tea, Pringles, and so on, will be entertaining us for some time to come.

....and Snowballs!

Hot off the press, I see that the FTT has recently ruled that "Snowballs" are cakes and therefore zero rated.

It was common ground that the Snowballs were confectionery, but the critical question was whether or not they were also cakes, which would make them zero - rated. No-one tried to claim that they were biscuits.

The tribunal decided that the Snowballs had sufficient "cake - like characteristics" to be treated as a cake. For example, the fact that "most people would prefer to be sitting whilst eating a Snowball" was regarded as a feature of a cake.

Fascinating....

This is in the UK's hands

The UK has a "Copper bottomed" entitlement to retain the zero rates that it had in place since 1991 for social reasons and this can only be removed by either;

a) the UK giving up the relief - eg listed building alterations, or

b) ALL 28 member states voting with no votes against

So if the UK wants to keep the zero-rates, it can politely tell the EU to go away.  And to change this bit of EU law requires the UK to agree. The question to me has always been which Chancellor and PM would have the political guts to remove the zero-rates, though at present HMRC are really attacking the margins of these reliefs.

The VAT law on food is crazy, but boy isn't it entertaining?!!

Perhaps we could agree a deal with them.  

We'll scrap zero rates the day after independent auditors sign off the EU's accounts.  That should keep food zero rated at least for my lifetime.....

so where is the problem here?

Standard rate vat on everything would make obeying the rules a whole lot easier, what’s not to like??

Yes I know prices suffer a blip, and benefits have to be adjusted to make sure those in need don’t suffer, but why should a fat plutocrat buy books without vat, or his kids clothes from Guccikidz not carry VAT, or his electricity only be billed at 5% - it’s politicians meddling twaddle in the tax system without any real understanding that should be binned.

And while we’re at it put vat on air tickets instead of all this APT toss, vat on bank charges etc……

Bin all the distinction between hot/cold takeaway food etc..

It’s simples to make it simples !!

Will the European Commission bring all of this fun to an end?

If they can.

Why?

Why should we need to change?  What business is it of the EU's?  They mention an 'unsustainable budget deficit (which we have under control and heading downwards).  How about they get their own spending in order, rather than threaten to 'broaden our tax base' (for which read, make more money available for EU mandarins to waste).

Yes, our system is complex and leads to some interesting cases but I'm pretty sure if we clashed a few heads together we could simplify it without penalising the lowest paid.

Bear in mind VAT impacts the poorest hardest, so any change would need to be offset by yet more benefit handouts which would end up costing more than any tax raised.

ah yes

millionaires shortbread

Not just UK

The reference to UK's 'multi rate VAT' is misleading. Have a look at http://ec.europa.eu/taxation_customs/resources/documents/taxation/vat/ho... - in fact we have one of the simpler schemes in the EU, it's just that we have a) a registration threshold, which does not exist in some member states, and b) some long-established zero rated supplies that are standard rated elsewhere. But I don't think the UK is anything special as far as VAT is concerned.

"despite the country’s

"despite the country’s unsustainable budgetary deficit."

There is nothing unsustainable about the budgetary deficit. Accountants really ought to know better than to say that, given that it is just the accounting counterparty to the increase non-government net savings. 

Unless you are against people increasing their net savings.

@Ian

You quoted "Bear in mind VAT impacts the poorest hardest, so any change would need to be offset by yet more benefit handouts which would end up costing more than any tax raised.".

Each time I see this I wonder how.  What is the definition of poor that is used for this.  Surely a better statement would be that "VAT impacts hardest upon the poorest because of the items and services they choose to buy".

@abelljms - Great idea and then reduce the VAt rate to make sure that us citizens pay no VAT than before

Vote UKIP

This is just what happens when you vote for morons.

We really should be voting for independent thought. UKIP is the only choice anything else is complete disaster.

Well they really don't seem to have got it yet do they ?

Given the ground-swell in the recent European elections AGAINST EU membership by several countries including Great Britain and France, they really don't seem to realise the weakened precipice on which they stand.So go on, make my day, increase VAT, put it on food too and watch the inflation rate rise and cost of living increase and then I can assure you that those Labour voters who had been on the fence deciding between Labour and UKIP may well be persuaded in favour of the latter at the 2015 general election and see them come to power at Westminster. So bring it on Mr Juncker, once you've had your morning's EU paid for double Camparis and brandys, and let's see how long your communist federalist project lasts this side of the channel. The end to all this nonsense may be nearer than you think!

The origins...

We (the UK) created VAT in the early 1970's before we joined the EU - even though we knew (or should have known) that if Edward Heath's government was successful in joining the EC (as it then was) we would not only have to have VAT as the community tax, which it still is, but would have to comply with EC directives.  Customs and Excise, given the job of implementing VAT (they bid for it and won apparently) decided that there was little point in following these directive thingies, it might never happen, and so designed the VAT system they thought we should have, concentrating on replacing purchase tax on certain manufactured goods and selective employment tax on employers generally.  The concept of zero rating was created at this time.  We were then given 5 years from accession (in 1973) before we had to comply with directives (and even now it is not uncommon for the UK to be found not to be applying directives correctly) but applied for, and were given in 1978, a derogation which allowed us to keep out VAT rules as they then were.  We are one of the very few EU countries that block VAT recovery (eg cars and UK entertaining etc) but as they were in place in 1978 we can keep them.  We tried to ban recovery of VAT on all entertaining but the EU held that overseas entertaining was not subject to the block in 1978 and so was contrary to EU directives and we had to change our rules.

In one sense the morons here were actually C&E who decided that they did not need to design our VAT system so that it complied with EC (now EU) directives and have caused all sorts of problems down the years as a result (consider VAT on property as a prime example).

For the moment, at least, the derogation concerning VAT in 1978 does protect zero-rating, but if we need to give it up then attention should be paid to the EU countries that charge MORE than the agreed maximum rate - such as Denmark (25% on everything, yes everything - no wonder their crime dramas are depressing), or significantly lower rates - such as Luxembourg at 15% which entice the Amazons of this world.  Our current 'single market rules' were designed as a temporary stop-gap in 1993 and designed to work for 4 years only - 21 years later we are still saddled with a nonsense system which protects the Danes from their citizens shopping accross the border with Germany.

It is not our 'tax breaks' which are the problem, VAT is supposed to be charged within bands - lower rates of 5% to 8% (we meet that target) and standard rates of up to 20% (we hit that too) if everybody did then we could simply charge ALL supplies at our own domestic VAT rate, regardless of where the customer was located, or whether they were in business or not, and allow recovery by traders of all VAT paid, whether on UK supplies or charged by businesses in other countries, this is what the Germans thought we should do in 1997 when the single market rules came to an end.

If reform is needed it should be more than isolated reform of our rules but EU wide reform to create a less crazy system.

AAH!! Purchase Tax

I was working for a HiFi manufacturer when VAT was introduced in 1973 I think.  The powers that be noticed  a drop in sales because VAT was at a lower rate than Purchase Tax and customers were holding off buying.  The powers that be then made a decision as they were hard pressed on margins - put up the prices by the VAT saving so the retail price stayed the same.  The storm of customer protest meant the Accounts staff had to wade in and man the phones along with the Sales staff.  Great fun.... or not!!

Leopards, spots

OK, let's look at this in basic terms.  The EUrocrats don't believe conceptually in any non-taxation.  So, why would they not want to "widen the tax base"?  They hate our exemptions and reliefs and particularly our registration threshold but hard work and our trademark British cynacism many years ago secured us a cast iron defence against the removal of our reliefs.  They can talk 'til the cows come home about widening tax bases, but the simple fact is we in the UK can laugh in their faces unless we also want to go down this line of widening the tax base.

It will not happen

Every now and then the EU talk about harmonising tax rates right across the EU, mainly Corporation tax, but it never happens. 

it is unconscionable

that UKIP should govern , it would be a total and utter fiasco and hand yet more power to the civil service.