A VAT Free Valentines

Love is in the air again.  But then so is recession.  So in these hard times you’ll be especially keen to pick up a few bargains that don’t involve paying 20% of the price to the tax man.  So here are a few suggestions on how to adapt traditional valentine’s gifts so that none of your Valentine’s Day needs to involve George Osborne spending your hard earned cash.

The Card

First one is one of the toughest.  Cards, eCards you pay for, and even paper to make a card, all come with VAT.  You could try making one out of a zero-rate magazine or picture book.  Or maybe buy a zero-rated map and circle your house with a heart.  Luckily, whatever you do send, the postage will be VAT free!

Flowers

Grow your own.  This one involves planning ahead but, if you’ve got the skill to do it, seeds at 0% are a far better option than flowers at 20%.

Dinner

You may not need an extra excuse to avoid the happy couple competition at your local restaurant, but happily the 20% VAT on catering and hot take-away food gives you one.  If you can pluck up the courage to cook at home you can have oysters, asparagus, fantastic steak and organic vegetables, all at a pleasing 0% VAT.

Chocolates

Sadly chocolate love hearts, chocolate truffles, and Quality Street all come in with 20% VAT.  But pick up some brownies or a chocolate covered cake from M&S and you’re back in zero-rating...

Photo Frame

This could be the year to avoid the ubiquitous heart-shaped photo frame at 20% VAT.  Happily, following last year’s Trueprint case, photobooks are now all VAT free, and just as romantic.

Lingerie

An old ploy for the smaller female has been to buy clothes in children’s sizes which are VAT free.  Somewhat reassuringly the legislation prevents this extending to lingerie so other solutions are needed.  Sadly I don’t really have any.  Maybe if it was made of food, but not sweets or chocolates as they’re all 20% rated confectionary.

Jewellery

Necklaces, earrings, rings and bracelets are all out I’m afraid.  But if he or she has got a taste for precious metals, a block of gold or some gold coins would come VAT free.

Going Out

Happily there are masses of things you can do together without the heavy burden of VAT.  Travel by tube or bus at 0%, instead of taxi or car at 20%.  A James Bond night at the Casino, no VAT, but if you start gambling there is admittedly betting and gaming duty.  Not-for-profit museums and zoos are all VAT free.  And similarly theatre and music; so avoid the profit making X-Factor gigs and get tickets for the not-for-profit Royal Opera House.

Romancing

Finally, if the evening progresses well, some more intimate romancing may come into play.  Just remember that all contraception comes at a reduced VAT rate of 5%.  Sure it’s not the full 20%, but if, like me, you want to be true to your VAT free principles abstinence is the only way.

Best wishes for a romantic VATless evening!

VAT Fact - Fine Wine

Now “dry January” has come to an end, a good bottle of red is surely featuring higher people's minds. With 20% VAT, plus excise and customs duties, the indirect tax implications can be substantial.

Where a business imports wine to the UK, customs and excise warehousing can be used to suspend the payment of VAT and duty until the wine is bought into “free circulation” e.g. drunk. This gives a great cash flow advantage, but if the wine remains in the UK ultimately taxes still need to be paid.

However, the beady-eyed advisor may note that “collectors' pieces” benefit from 0% customs duty and a reduced effective VAT rate of 5%. A potentially massive saving! So could wine be considered a collectors’ item of historical or ethnographic (cultural) interest?

Precedent comes from the decision in E Daiber v Hauptzollamt Reutlingen, identifying five criteria for classification as a “collectors’ piece”. So perhaps we can consider the recent sale of three bottles of Chateau Lafite 1869 (for a bargain approx £500k), in light of these specific criteria.
Link to info on expensive wine auction...

1. Possesses a certain scarcity value: Chateau Lafite has a small output and not many will have survived since 1869.


2. Not normally used for their original purpose: Given the article informs us there’s “a likelihood that at least one of them may be opened and drunk”, this suggests the majority of the bottles would not be used for their original purpose.



3. Subject of special transactions outside the normal trade in similar utility articles: Most wine is sold in shops, collectors’ items are generally sold at auction.



4. Of high value: Fairly self evident.


5. Illustrates a significant step in the evolution of human achievements or a period of that evolution: Perhaps of more debate but there is apparently huge interest in “pre-phylloxera vintages” and I’m sure many a wine buff would happily argue the cultural value of certain wines.

I leave this for you to decide...

Books, eBooks, and VAT

eBooks have been a hot topic all year. Prompted by my proud 10th follower on Twitter I thought I'd jot a short post to highlight where we are and what can happen next.

When EU and UK VAT legislation was drafted eBooks didn’t exist. Hence books have been defined in VAT law as being in physical form, and an eBook falls within the broad category of an "electronically supplied service". The result in the UK is books at 0% VAT and eBooks at 20%. Not very modern, or fair it may seem.

So why not change the law? Unfortunately it's not that simple. VAT is an EU harmonised tax, and when the UK joined the EU it agreed to follow the VAT Directive. Any "new" reduced rates in the UK must be EU wide and permitted by the Directive. Currently it is not permitted to apply a reduced rate to eBooks, a change would require 27 member state approval, and we all know this doesn’t happen quickly. More on this in a bit.

An added twist is that eBooks are currently subject to VAT where the supplier is established. This means that if you (a UK resident) buy an eBook from a UK based company you'll be charged 20% UK VAT, but if you buy one from a Luxembourg based company you'll be charged 3% VAT. Next time you buy an eBook have a look at the t'c and c's, you may be interested to see who it is you're actually buying your eBook from. The rules change in 2015 but for the moment there is a competitive advantage for eBook providers to be located outside the UK.

Why can Luxembourg charge a 3% rate and not the UK? On 1st January 2012 France introduced a 7% reduced rate for eBooks, and Luxembourg (possibly in response to this) a 3% rate. Whether France and Luxembourg are correctly able to do this within EU VAT law is a complex question. However, there is a technical difference between the two. Countries who had existing reduced rates of VAT for certain goods/ services were allowed to keep these when they joined the EU; Luxembourg’s 3% is a pre-EU rate (similar to the UK’s 0% rate), whereas France appears to be extending an EU wide reduced rate. So when it comes to extending our 0% VAT rate to eBooks the UK ought to be in a similar position to Luxembourg.

David Gauke that Treasury Minister has said that “There is therefore no scope in the principal VAT Directive to apply a reduced rate on e-books”. This is technically correct but doesn’t really answer the question as the UK 0% rate is permitted outside of the Directive. The real question is whether the UK can legally extend/ apply its 0% VAT rate to eBooks, and the technical article “How to Zero-Rate eBooks” suggests that it probably can: www.taxjournal.com/tj/issuearticles/909

Actually this would put the UK in a very strong position as it is one of only two EU countries able to apply 0% VAT to books. If this rate could be extended to cover eBooks, the UK could undercut both Luxembourg and France (and pretty much all the EU) as being the most preferable location for an eBook business. The reality is that that political pressure will probably mean that the EU VAT treatment of eBooks will eventually fall in line with physical books. This is not the easiest time to attract business to the UK, perhaps the government is missing a trick...

VAT Fact - Renovations...

Just a quick fact this week! As the economic forecasts are downgraded around us this is a time to be thrifty, and even William and Kate are renovating their Kensington Palace apartment rather than moving to a newer more functional home Link to intrusive article on Will & Kate's personal life. So, you’re probably wondering if this is simply more convenient, or do Will and Kate know something that we don’t know?

And the answer is probably that the second. Unlike work on an ordinary home, an approved alteration of a protected building (for example listed building) is subject to 0% VAT, and this includes the building materials that they use. So where as you or I will probably end up paying 20% VAT on our loft extension, for older more historic dwellings the treatment is different.

Joey the Horse

No doubt everyone will have been excited to see the attendance of Joey the horse at the UK premier of Steven Spielberg’s War Horse this week Link to article on War Horse Premier. Although, like me, you might have been concerned as to the VAT implications of his foray to the UK.

Unlike “meat animals” the supply of horses is standard-rated, and so, in common with any racehorse, Joey could be expected to pay 20% import VAT on arrival. We would hope he could get around the relevant import duty and VAT under temporary importation relief, which would usually allow a temporary stay of up to two years in the EU. However, the legislation does refer to “import for training, breeding, veterinary
treatment, participation in a race, or grazing” and so we would probably want to seek a ruling on import for attendance at a movie premier.

Should Joey be paid attendance money, his position would be similar to that of racehorses; whilst prize money is usually outside the scope of VAT, attendance money or guaranteed prize money is subject to VAT. We would also need to look at the VAT establishment of the supplier who owns Joey (different to establishment for CT purposes) in order to determine whether the place of supply is in the UK or otherwise.

A few interesting facts about VAT

This is a Christmas special that I wrote for Harry's blog http://www.trivialpursuits.org/. Hope you enjoy...

To help whip up some enthusiasm for my forthcoming article on “Growth and Taxation” (yes, the title may be dry but the content will juicy), here come some Christmas VAT pleasers to add extra entertainment to your family gatherings this December.
Britain’s favourite VAT fact, as demonstrated by a Sun newspaper poll on the topic (this is not the link but I couldn't find the real one), concerned the biscuit status of our beloved Jaffa Cake. This fervent argument which rumbled all the way to tribunal, all stemmed from differing treatment of chocolate covered biscuits (20% VAT) and chocolate covered cakes (0% VAT). Whilst the taxman would contend (and still does) that it looks like a biscuit, is packaged like a biscuit, is used like a biscuit, Sun readers think it’s a biscuit, and basically it is a biscuit, the courts thought otherwise. And a VAT fact was established: cakes go hard when stale whereas biscuits go soft. FACT.

And Jaffa’s are not alone. Various interpretations of the tax law on food have lead business to make some quite bizarre claims about their own products. Pringles were so keen to get away from the 20% VAT charged on “potato crisps and similar products” that they went all the way to the Court of Appeal to claim that Pringles are not made from potato. Which makes you wonder what they are made from; I think “oil” featured heavily in the discussions. And Lucozade are currently of the view that Lucozade Sport is not, as might be thought, a beverage, but in fact a “functional food”. Watch this space for more news on that battle.

Because, you see, the watchful eye of VAT encompasses all we do. There is really no escape. Just look to the judgment in R&J Polok t/a Supreme Escorts; establishing the VAT FACT that just because what someone is doing is illegal, it doesn’t mean it’s not subject to VAT. In its summary the High Court surmised that to not charge VAT on Supreme Escorts’ services would give a competitive advantage over escort and introductory agencies that did not provide sexual services. You can’t argue with logic like that.

So think fondly and muse on VAT over the Christmas period. And next time you enjoy a Toasted Sub, you can ponder on whether Subway were correct when they maintained that it is not a “hot food”. And as you slurp its fruity goodness give a thought to whether your Innocent Smoothie is really, in fact, a “liquefied fruit salad”?

VAT Fact - Liz Taylor Auction

You may have seen the news about the record breaking €115m auction of Elizabeth Taylor’s jewellery in New York last night. So no doubt you’re wondering what the VAT implications are of bring some of these beautiful items back to the UK? So...

Generally you’d expect jewellery to attract 20% import VAT;

But if you snapped up the $11m pear-shaped 16th-century pearl, once owned by England's Mary Tudor, this would qualify as an antique and an reduced effective VAT rate of 5%;

And similarly, if you could successfully argue that the $4.2m tiara (a birthday gift in 1957) is an item of historical significance, the 5% could also apply.