E-Cigarette attract 5% VAT
A recent Tax Tribunal case has highlighted a number of misconceptions about the 5% reduced rate of VAT and the lack of knowledge about the rate; both by the general public and small businesses.
I suspect that many of my readers have only heard of the rate in relation to their domestic gas and electricity supplies. It may surprise you to know that it covers goods and services as disparate as nicotine gum and large caravans.
So today, I’ll cover the main areas covered by the reduction and how it could apply to you:
Plumbing & Heating
In plumbing and heating the Government’s “Green Deal”, means that items that are deemed to reduce our carbon footprint only attract a 5% rate. These include heat pumps, wood fuelled boilers, Insulation, draft excluder strips, solar panels and controls for central heating and hot water systems including thermostatic radiator valves; the reduced rate also applies to any labour to install them.
In the Tribunal case, the issue was the use of special VAT software by plumbers. The software identifies which parts of a job are standard rated and which are at 5% and apportions the labour element, resulting in a potentially significant VAT saving. Unfortunately the ruling was that in the case of the installation of a central heating system, it was a single supply of services and no apportionment was allowed.
Personally, I think this is somewhat hypocritical by the authorities if their primary aim is to encourage the instillation of such items.
The good news is that any central heating installation, including the radiators is 5% if you’re over 60 or in receipt of long-term benefits (to the extent they are grant-funded).
Welfare and Health
- Mobility Aids – If you are over 60 the 5% reduced rate of VAT applies to the supply and installation of grab rails, ramps, stair lifts, bath lifts, built-in shower seats and walk-in baths with sealable doors. Unfortunately this concession doesn’t extend to any repairs or replacements of those goods once they’ve been installed.
- Smoking – Any products whose primary use is to aid the cessation of smoking, including nicotine patches and gum and the smokeless rechargeable cigarettes
- Maternity Pads – I think the expression speaks for itself, but in the interests of clarification, this section pretty well includes any form of towel, pad, tampon and panty liner.
Building, Land and property
If you inherit an elderly relative’s house, providing it has been empty for 2 years, all renovations are eligible for the 5% rate.
Alternatively, if you decide to convert your house and use part of it to create a separate dwelling, such as a “granny flat”, this also attracts the 5% rate.
Caravans
If you fancy taking to the open road and are thinking of buying a caravan, its size is critical. Your new caravan will be standard-rated at 20% if it does not exceed 7 m in length and 2.55 m in width. However, if it’s bigger than that, either in width or length, the 5% rate applies.
Only 5% VAT
Note: BS 3632:2005 is the current standard for residential caravans and confirms that a caravan is designed and manufactured for continuous year round occupation and is therefore suitable for residential use. If your caravan has this standard it is zero-rated.
Protective and safety equipment
Carrycots with restraint straps, children’s car seats, booster seats and booster cushions are all 5%. It gets a touch more complicated for those seats which double-up as car seats and prams/push chairs. Whether supplied separately or together, the safety seat is reduced-rated; the wheeled framework is standard-rated.
Well that covers everything you’re likely to need to know, but if you’d like more information on any of these areas, I will be pleased to help.
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David Jones is the Senior Partner and Founder of Morgan Jones & Company. Born in Liverpool and an Accountancy graduate of the University of Wolverhampton, David spent twenty years working for the Customs & Excise in London then Shrewsbury before starting his own business. David's depth of knowledge of the UK tax system and his ability to communicate this learning has seen Morgan Jones & Company grow into Shropshire's most respected Accountancy Practice.