Is there VAT on that hot/warm/cold lunchtime snack?

Thanks to City AM for the image.

The BBC giving a platform to Labour without asking any inconvenient questions

The BBC happily reprort that:

'Shadow Chancellor Ed Balls has called on the government to reverse January's VAT rise on car fuel immediately.

Ministers needed to act now rather than wait until the Budget to reduce fuel charges, Mr Balls told the BBC.

He said it was wrong to increase the VAT rate at a time when tensions in the Middle East were pushing up fuel costs.

Mr Balls urged Conservative and Liberal Democrat MPs to vote with Labour to reduce the VAT on fuel when the issue is debated in Parliament next week.'

Not a word about Labour's fuel escalator or the myriad of rises in fuel duty under Labour. Ed Balls is just allowed to say what he likes. If this had been an article by a Conservative during the last Labour government then space would have been put aside for the Labour response, this was often immediately after the initial headline accusation and before the detail of that accusation. The BBC's bias just gets more and more blatant.

Labour's plans for VAT

'Proposed changes
VAT rates and exemptions

VAT is a tax on the final consumption of goods and services, collected at every stage of production and distribution. It is charged on the majority of goods and services at the standard rate of 17.5%. The proposed changes will reduce this to 15% from 1 December 2008 until the end of 2009. The standard rate will then return to 17.5% from 1 January 2010, and subsequently increase to 18.5% in 2011-12.'

The above is from 'EXPLANATORY MEMORANDUM TO THE VALUE ADDED TAX (CHANGE OF RATE) ORDER 2008 2008 No. 3020' and shows that Labour planned to increase VAT to 18.5% in 2011-12.

So the next time Ed 'son of Brown' Miliband or Alan 'needs an economics primer' Johnson witters on about VAT being a regressive tax and that the increase is putting the recovery at risk, maybe the interviewer could raise this point...

More at Scribd here.

Thanks to Harry Cole on Twitter for the spot.

When is a survey important and when is it not?

Since the 2010 general election when a left-leaning think tank forecasts doom and gloom for the economy, the BBC lead with that story but it seems that when the Financial Times (FT) conducts an extensive survey of leading economists' and finds that 'most concluded that the austerity measures, including today's rise in the rate of value added tax to 20 per cent, were a big gamble but  one that was likely to pay off.' and contrastingly that 'Their biggest concerns were over Britain's stubbornly high inflation and the risk of am intensifying eurozone sovereign debt crisis imperilling economic recovery', the BBC choose not to report the story at all.

The Labour party and the rise in VAT

I presume that the Labour party will publicly commit itself to reversing the rise in VAT to 20% as soon as they are elected to power. If not then all the whining about unfairness is just hot air.

The Emergency Budget - some alternative views

1. Chris Stokel-Walker has some ideas regarding how 'To stick it to George Osborne'. It's a great piece, here's a few extracts:

'There are some strange anomalies in the food VAT system. Were I to buy a live horse (as my girlfriend would want me to – though presumably not to kill and eat later) I would have to pay the standard rate of VAT. If, though, a friendly farmer has already saved me the bother of killing it (I’m really really sorry – you know I would only buy live horses to give to you), then I can have a whole dead horse – or horse cutlets – vacpacked and sold to me as exotic meat, VAT-free. Why? Live horses aren’t considered a recognised food species. Dead horses, presumably, are.

...

Monkey nuts (peanuts in their shells) fall under the zero rate; the second you remove the horrible outer shell, they become KP nuts (or some other equally popular brand) and you have to pay VAT. It’s not even the roasting or salting that makes the difference – it’s the shell. Honest.

...

If you pop into your local bakery from today, eye up those gingerbread men with caution. If their little toes have been dipped in chocolate (because gingerbread men’s feet would get blisters if they had to walk without shoes), then the government has ruled them to be too extravagant. They’re parading around in their chocolate boots, while your average Tom, Dick or Harry Gingerbread has to make do with a pittance. ‘Gingerbread men decorated with chocolate’ come under the standard rate of VAT, ‘unless this amounts to no more than a couple of dots for eyes’. Bakers of Britain: let your gingerbread men and women run naked, free like pre-Lapsarian Adam and Eve! We’ll have no fancy winklepickers, thank you: this is austerity Britain.

...

Millionaire’s Shortbread is zero-rated while plebian chocolate-covered shortbread is taxed at the full rate. I don’t think I need to explain why that one is funny.'

2. Mr Eugenides has the killer phrase: 'Vince Cable looks like he's swallowed a shit-flavoured landmine.' Indeed he did.

To raise VAT or not to raise VAT, that is the question

And the arguments seem to be within the Labour cabinet. Harriet Harman is reported to have said that the increase due for 1 Jan is "under review". Alistair Darling talking on the BBC's Andrew Marr Show said it would "definitely" return to its original higher level of 17.5 per cent on 1 January.

Hmm "definitely"; when was the last time someone said "definitely" and then had to change their mind? Will the "definitely" stay definite as long as it did for Lord Malloch Brown?

So will Alistair Darling stick to his guns and behave like a "congenital idiot" or give in to pressure from above and show that he has the backbone one would expect from someone who has made the journey from being a supporter of the International Marxist Group, the British section of the Trotskyist Fourth International, to senior Labour party politician.

Gordon Brown and his problems with mathematics (update)

Further to my blog yesterday about Gordon Brown's worrying problem with simple multiplication. I see that Hansard have reported his words thus: "that £5 extra is in people’s pockets—that is £275 a year". The BBC are sticking with "Mr Brown defends the VAT cut, saying it gives the typical family an extra £5 a week to spend.".

As I said yesterday, are the BBC unaware that 5 x 52 does not equal 275? Do they have nobody who can multiply a two digit number by 5 working there? Or are they trying to protect the Prime Minister from ridicule?


Ask yourself this, if a similar error had been made by Margaret Thatcher or John Major when they were Prime Minister or by any subsequent leader or shadow Chancellor, do you think the BBC would have played the clip over and over and over again for years.

Not "a good idea"

The BBC reluctantly report that:

"Olivier Blanchard, the IMF's chief economist, said that the temporary cut in VAT would not significantly influence shoppers' behaviour.

In an interview with French newspaper Le Monde, Mr Blanchard said he did not think the cut was "a good idea". "

Mr Blanchard is an economist, what qualifications for being Chancellor of the Exchequer did Gordon Brown have?

The return of 3/23?

The rumours that Gordon Brown and Alistair Darling may be reducing the VAT rate from 17.5% to 15% set me thinking about how this would or would not affect prices. Since most retail prices are quoted inclusive of VAT and are set at certain price points the decrease will probably make next to no difference for most retailers who will probably just take the extra 2.13% as extra profit, it might help offset the rumoured increases in taxation and the loss in turnover. Wholesale prices will be adjusted as most are quoted net of VAT "plus VAT at the prevailing rate", however as most businesses are Standard Rated for VAT any decrease in VAT will make no difference as it will be accounted for on the VAT return as a reduction in both input VAT and output VAT. There will be a timing difference as businesses mostly still operate on an accruals basis for VAT accounting and so will be reclaiming input VAT at the 17.5% rate whilst paying Output VAT at 15% BUT this still makes no difference to the business's profits.

The one big difference that I can see is that the magic fraction of "7/47" will revert back to "3/23"; accountants will understand what I mean... and will remember the "thrill" when it changed last time. Of course there might even be a system with multiple rates of VAT, with some goods at 15% and some at 17.5% and maybe some at 22%, but that prospect is just too exciting for words and will create much work for accountants and Sage software installers.

Pringles 'are not potato crisps'

Shock news but a High Court judge has ruled that Pringles are not potato crisps. The court case arose because Procter and Gamble (the makers of Pringles) challenged a H.M.Revenue & Customs decision that Pringles were subject to the standard 17.5% rate of VAT because it was it was "a potato crisp product" which are, unlike most foods, subject to VAT. The decision means that Pringles are now free from VAT.

Procter and Gamble (P&G) argued that Pringles were not potato crisps because of their "mouth melt" taste, their "uniform colour" and their "regular shape" which "is not found in nature". They also argued that Pringles contained non-potato flours. P&G argued that Pringles are more like a cake or a biscuit because they are manufactured from dough, in fact they are only 42% made from potato flour.

This follows on from previous court decisions regarding Jaffa Cakes and Teacakes.

Chocolate-covered teacakes

Further to my blog about the vat rating of jaffa cakes and teacakes, I read that "The UK Treasury is facing a £3.5m bill, because of VAT wrongly imposed on a Marks and Spencer teacake, the European Court of Justice (ECJ) has ruled. Customers paid VAT for 20 years before the authorities accepted the product was a cake, which does not command VAT. The UK argued that paying back the total sum would "unjustly enrich" M&S as customers had paid the money. The ECJ ruled that, in principle, VAT had to be repaid in full, but left the final decision to the British courts."

Of particular interest is the section headed "VAT ON CAKES AND BISCUITS -
How various products are classifed by HM Revenue and Customs"

Shame the BBC can't spell classified...

Are Jaffa Cakes chocolates or cakes?

Are Jaffa Cakes chocolates or cakes? This was a serious VAT question for accountants as cakes are zero rated for VAT purposes whilst luxury biscuits (although not basic biscuits) are standard rated (currently 17.5%%) for VAT purposes. The matter was settled in 1991 by a tribunal and Jaffa Cakes were officially designated a cake not a biscuit. Now Burning Our Money informs us that the ever marvellous Nice cup of tea and a sitdown website inform us that there is much "confusion over the chocolate-covered teacake - a dome of marshmallow on a biscuit swathed in milk chocolate - could cost the British government £3.5m after an EU court adviser said the retailer Marks & Spencer should get a refund of the tax it paid during the decades that tax authorities insisted they were biscuits." "From 1973 to 1995 the Teacake which has a biscuit base was accepted to be a biscuit and being covered in chocolate was liable to VAT at the full rate. This is the converse of the Jaffa Cake which as a cake gets away with zero rating. However, in 1994 Marks & Spencer successfully got the Teacake reclassified as a cake, and thereby made a claim for all the excess tax they had paid over the last 21 years. A small proportion of that sum was paid out some three years later.
Now Marks & Spencer may be closer to retrieving the rest as one EU rule clashes with another, according to Juliane Kokott, Advocate-General of the European Court of Justice. The case will need to go to theEuropean Court of Justice before a decision is made."


The article goes on to discuss Hobnobs, plain and chocolate covered and the Bahlsen PICK UP.

Take a read but do realise that the whole matter only became an issue because of the then EEC.