What do we actually pay tax on?

What do we actually pay tax on?

Ever wondered what you do and don’t pay tax on in the UK? As you are probably already aware being a student you are not required to pay council tax, yippee! However, as tax is already included in the price of many goods, a lot of the time it’s hard to tell not only if we’re paying tax but how much. It is a known fact that in the UK VAT is currently 20% on a huge range of items, including clothes, technology, food etc.

VAT rates for goods and services

Rate  % of VAT What the rate applies to
Standard 20% Most goods and services
Reduced rate 5% Some goods and services, e.g. children’s car seats and home energy
Zero rate 0% Zero-rated goods and services, e.g. most food and children’s clothes

Source: Gov.uk

Reduced rate VAT
In the past, tax was added to items that were deemed as ‘luxuries’, although many of us see them as essentials. Goods and services that fall into this category have a reduced rate VAT, meaning that people in the UK pay 5% tax as opposed to the usual 20%.

The products and services in the reduced rate VAT category are*:

  • Domestic gas and electricity
  • Children’s car seats
  • Mobility aids for the elderly
  • Heating oil and solid fuel for domestic and residential use
  • Smoking cessation materials, such as nicotine patches and gum
  • Energy saving materials installed in personal or business premises, such as solar panels

VAT free
Then there’s the VAT free category where, as you guessed it, these products or services don’t pay any tax.

The products include*:

  • Baby wear, children’s clothing and children’s footwear
  • Books, newspapers and magazines
  • Printed or copied music
  • Caravans (depending on their size)
  • Water supplied to homes
  • Donated goods sold in charity shops

The services include*:

  • Betting and gaming
  • Bingo and lotteries
  • Physical education and sports activities
  • Burial, cremation or burial at sea
  • Funeral plans written under contract of insurance
  • Medical treatment and health care
  • Postage stamps (UK and Isle of Man)
  • Financial services such as loans and other forms of credit
  • Insurance services

Interesting tax laws to consider

  • Cold take-away food is considered VAT free, whereas hot take-away food has 20% VAT
  • Nuts in their shells are considered VAT free, whereas shelled, roasted or salted nuts have 20% VAT
  • Potato crisps are subject to 20% VAT, but maize and corn-based snacks, such as tortilla chips, are VAT free
  • Frozen foods are VAT free, yet ice-cream and frozen yoghurt are subject to 20% VAT

I bet you’re now rethinking what you’re going to be having for your Saturday night take away now!

Sanitary Towel Debate
Something which has caused a bit of controversy in the news recently is whether or not women’s sanitary products should be subject to tax. In 2001 they were moved into the reduced rate VAT category, as they technically are a necessity, however, there is now a campaign petitioning for them to be tax free. They, along with maternity pads, are currently grouped into the reduced VAT category meaning that they only have a 5% tax as opposed to the usual 20%.

What are your thoughts on this? Should they be tax free?

*Facts and figures were obtained from which?