Saturday 7 November 2015

A tax on luxuries?

Betteridge's law says that "Any headline that ends in a question mark can be answered by the word no." That's true here, too.

Some people seem to think that VAT is a tax on luxuries. It's difficult to understand why people think that. VAT is a tax on "value added", meaning "everything". For more reasons that are difficult to understand, the rate of VAT on some things is zero; books, newspapers, children's clothes, motorcycle helmets. And there's also a "reduced rate", 5%, for children’s car seats, domestic fuel or power and other stuff. Everything else is 20%. How are newspapers a necessity?

A long, long time ago, up till 1973, there was a thing called "purchase tax". That really was a tax on luxuries, introduced in 1940 to help the war effort, and they forgot to get rid of it when the war ended. Big surprise.

So when the UK introduced VAT, at the same time purchase tax was abolished. And that's maybe why people think that VAT is a tax on luxuries.

It isn't. It just isn't. It's a tax on everything, except what's on the list

So I notice a campaign to zero-rate tampons, on the grounds that they aren't a luxury.

The goods and services of the world are either luxuries, or necessities? Like hell. It isn't a binary division, one or the other. Take clothes, for example. One t-shirt, one pair of traousers and my underwear - those are necessary. My "Four candles" t-shirt that I wear occasionally, isn't. Nor is my "Peppa Pig t-shirt". Or my pirate costume. Nor is my 11th pair of trousers, 23rd pair of socks or 17th t-shirt. The division necessity/luxury isn't binary. Some things are both, some things might be either.

But it doesn't affect whether tampons should be taxed, because, and I'll say it again, VAT isn't a tax on luxuries.


  1. I find it interesting that your cycle helmet is zero-rated, but the sanitary protection item is rated at 5%.

    It's clearly a political decision as to which items can be zero- or reduced- rate VAT items, and I would suggest that the test for such is indeed a test of need vs. want, hence luxuriousness.

  2. Books are 0%. Audio books are 20%
    Cycle helmets are 0%, reflective arm bands 20%
    Newspapers are 0%. How are newspapers a need?

    It's all a bit random.

    The tampon SJWs are right in a sense - it's all politics, and if they pressure the politicians enough, they'll get their 0%.

  3. I read something to the effect that it's to do with the legislation at the time VAT was set up, some things "hadn't been invented" then, so legislation would have to be changed to accommodate the change in VAT on them.