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Innocent smoothies and VAT

Tuesday, November 23, 2010

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VAT, an indirect tax, is added to most goods, the standard rate of 17.5% is due to rise to 20% from the 4th January 2011. The reduced rate of 5% is for gas and electricity and children’s car seats. There is also a zero rate for most food items, children’s clothes and books, newspapers and magazines.
Innocent smoothies have been fighting a legal battle claiming that their 100% fruit smoothies should not be subjected to the standard rate but in fact should have the zero rate.

If the raw ingredients to the smoothies were sold separately they would not be subjected to VAT. Tax rules state consumers pay no VAT on ‘essential’ foods and drinks but must pay 17.5 per cent on ‘luxury’ items such as smoothies and ice cream. The tribunal has found that Innocent Smoothies are ‘luxury’ items and not ‘essential’ food items. It ruled the Treasury was right to refuse to refund VAT to Innocent - even though it has offered rebates to unhealthy foods such as burgers and chips on the basis that these are ‘essentials.
Milk, tea and hot chocolate are not taxed but fizzy drinks and fruit juices are subject to full VAT.

Categories: MACROECONOMICS TOPICS Fiscal policy
Tags: vat, gcse macro, indirect taxes