Slightly rippled with a flat underside
Nov. 10th, 2010 03:54 pm![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
ventaSo. Some think-tank, somewhere, has suggested that VAT be made more simple.
The sentence our office picked out of this report was this:
Extending VAT to most spending would "reduce complexity and avoid costly distortions to consumption choices", the report said.
We tried - and we tried quite hard - to understand this. And failed. Yes, extending VAT would reduce complexity (for businesses, if not for end consumers). But that other bit... how does that work? In what way does VAT cause "costly distortions" that would be fixed if everything attracted VAT?
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exspelunca, I'm looking at you for help here!)
Extending VAT - at a fixed rate - to "most spending" would, I think, be a crying shame. Please note, I don't say that it isn't a good idea - I don't feel I've got enough of a grasp on the economics to have much of an opinion on that.
However, it would be terribly disappointing. Why's that? Well...
I realised that I had no idea what rules governed which foods had VAT on them. So I went to look it up.
The HMRC guidelines are hilarious. No, really. They're very funny (if you're me).
The rules are clearly the result of someone trying to take broad principles and tie them down. And, as any decent munchkin will know, any set of rules will probably have some silly extremes to which they can be taken. Edge cases are your friends.
So, we start off with odd things like koi carp. They're ornamental fish, so are taxed at standard-rate (SR). Unless you prepare them for human consumption, in which case they don't attract tax (zero-rated, ZR).
But the real fun starts with baked goods. In case you're curious, baked goods which attract standard-rate tax are:
* biscuits wholly or partly covered in chocolate (or some product similar in taste and appearance); and
* any item of sweetened prepared food, other than cakes and non-chocolate biscuits, which is normally eaten with the fingers
* biscuits which belong to the Emperor
(OK, I did make the last one up).
Bready products are ZR, unless they are wrapped round food for take-away purposes, in which case they're SR. Millionnaire's shortbread is ZR, but partially chocolate-coated shortbread is SR - presumably, as a colleague pointed out, because the caramel acts as an insulation layer to keep the tax away. Having presented a two-column table with these corresponding items appearing by row, the last row rather oddly tells you that Lebkuchen is ZR, but coconut ice is SR. I'm not sure of the connection there.
There's a special case for gingerbread men, by the way. Biscuits decorated with chocolate are filed under "partially coated" and attract SR tax - except in the case of gingerbread men, if "this amounts to no more than a couple of dots for eyes". The HMRC makes no attempt to address the well known cake/biscuit dilemma with respect to Jaffa cakes, and merely provides them with their own entry in the table (they're ZR, which means HMRC obviously thinks they are not a "wholly or partly coated biscuit").
If you sell a hot pie for take-away, that's SR. If you sell a hot pie to someone to take away and eat, but it's merely hot because it's recently come out of the oven and hasn't cooled down yet, that's ZR. Dried fruit for snacking is SR, but dried fruit sold for "snacking and baking" is ZR.
And that's before you reach paragraph 3.7.3, "Drinks which are not beverages".
Honestly, it's a lot of fun. Go and have a read :)
The sentence our office picked out of this report was this:
Extending VAT to most spending would "reduce complexity and avoid costly distortions to consumption choices", the report said.
We tried - and we tried quite hard - to understand this. And failed. Yes, extending VAT would reduce complexity (for businesses, if not for end consumers). But that other bit... how does that work? In what way does VAT cause "costly distortions" that would be fixed if everything attracted VAT?
(
exspelunca, I'm looking at you for help here!)Extending VAT - at a fixed rate - to "most spending" would, I think, be a crying shame. Please note, I don't say that it isn't a good idea - I don't feel I've got enough of a grasp on the economics to have much of an opinion on that.
However, it would be terribly disappointing. Why's that? Well...
I realised that I had no idea what rules governed which foods had VAT on them. So I went to look it up.
The HMRC guidelines are hilarious. No, really. They're very funny (if you're me).
The rules are clearly the result of someone trying to take broad principles and tie them down. And, as any decent munchkin will know, any set of rules will probably have some silly extremes to which they can be taken. Edge cases are your friends.
So, we start off with odd things like koi carp. They're ornamental fish, so are taxed at standard-rate (SR). Unless you prepare them for human consumption, in which case they don't attract tax (zero-rated, ZR).
But the real fun starts with baked goods. In case you're curious, baked goods which attract standard-rate tax are:
* biscuits wholly or partly covered in chocolate (or some product similar in taste and appearance); and
* any item of sweetened prepared food, other than cakes and non-chocolate biscuits, which is normally eaten with the fingers
* biscuits which belong to the Emperor
(OK, I did make the last one up).
Bready products are ZR, unless they are wrapped round food for take-away purposes, in which case they're SR. Millionnaire's shortbread is ZR, but partially chocolate-coated shortbread is SR - presumably, as a colleague pointed out, because the caramel acts as an insulation layer to keep the tax away. Having presented a two-column table with these corresponding items appearing by row, the last row rather oddly tells you that Lebkuchen is ZR, but coconut ice is SR. I'm not sure of the connection there.
There's a special case for gingerbread men, by the way. Biscuits decorated with chocolate are filed under "partially coated" and attract SR tax - except in the case of gingerbread men, if "this amounts to no more than a couple of dots for eyes". The HMRC makes no attempt to address the well known cake/biscuit dilemma with respect to Jaffa cakes, and merely provides them with their own entry in the table (they're ZR, which means HMRC obviously thinks they are not a "wholly or partly coated biscuit").
If you sell a hot pie for take-away, that's SR. If you sell a hot pie to someone to take away and eat, but it's merely hot because it's recently come out of the oven and hasn't cooled down yet, that's ZR. Dried fruit for snacking is SR, but dried fruit sold for "snacking and baking" is ZR.
And that's before you reach paragraph 3.7.3, "Drinks which are not beverages".
Honestly, it's a lot of fun. Go and have a read :)
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no subject
Date: 2010-11-10 05:56 pm (UTC)no subject
Date: 2010-11-10 06:51 pm (UTC)no subject
Date: 2010-11-10 07:03 pm (UTC)As a producer, the way that you reclaim input tax on your raw materials and pay output tax on your products means that you are in a very tangible sense being taxed on the value that you add with your process. But I will freely admit that before I set up in business, I had no idea that was how it worked; and I don't suppose many other people who experience it only as consumers do either.