Key takeaways
- VAT can be surprisingly quirky: From chocolate-covered gingerbread men to dancing debates, VAT rules often lead to unexpected (and amusing) outcomes.
- Food and fun spark controversy: Iconic cases like the Jaffa Cake ruling and Pastygate show how small distinctions can cause big tax debates.
- Context matters: Whether it’s sitting down for gelato or downloading an e-book, where and how something is consumed can completely change its VAT rate.
In short: VAT in Europe has some surprising quirks. In the UK, a plain gingerbread man is VAT free, but a chocolate-covered one is standard-rated. Courts have ruled on whether Jaffa Cakes are cakes or biscuits. In Italy, gelato eaten at a table is taxed at a different rate from gelato you take away.
Okay, so VAT might not be the most exciting topic. But there is still some humor to be found in this most common of taxes. VAT rules can be applied in many ways, so the results are often unexpected. Here are eight fun facts that show just how quirky VAT can be.
Why is a chocolate gingerbread man taxed but a plain one isn't?
In the UK, a plain gingerbread man is VAT free, but one covered in chocolate with icing eyes becomes standard-rated. Across Europe, VAT rates vary a lot from one country to another. What often surprises people is when and why items fall into different VAT brackets.
Nuts work the same way. Nuts sold in the UK with their shells on are VAT free. Sold without shells, they attract the tax.
What was the great Jaffa Cake debate?
The Jaffa Cake debate was a 1991 UK court case over whether Jaffa Cakes are cakes or biscuits for VAT purposes. In the UK, classifying food for VAT can lead to disputes, and this is the classic example.
Jaffa Cakes are a popular biscuit-sized cake with an orange filling and a chocolate coating. As cakes, they would be zero rated VAT. As biscuits, they would be standard rated. The court ruled in favor of McVitie’s and treated Jaffa Cakes as cakes.
What was Pastygate?
Pastygate was a 2012 row over UK plans to charge VAT on hot pasties and pies. The UK government announced that all foods bought and eaten while hot would be charged at the standard 20% rate. That included much-loved British pasties and pies.
There was an uproar. It was also pointed out that such foods are often bought hot and eaten cold. The VAT rate hike was scrapped, and the affair became forever known as Pastygate.
Does the VAT on dance classes depend on the dance style?
Yes, in some EU countries the VAT on dance studios and dance classes depends on the dance style. Different VAT rates apply depending on whether the style is seen as artistic or simply entertainment. This has led to some creative arguments over which dance styles are ‘high art’ and which are just for fun.
Why is a rabbit cheaper than a hamster under UK VAT rules?
Rabbits are labeled as food under UK VAT rules, so they aren’t subject to VAT. Hamsters and guinea pigs, on the other hand, are classed as pets. So they are taxed at the standard 20% rate.
If you’re planning to buy a pet for your children, you might consider a rabbit rather than a hamster or guinea pig.
Are e-books and audiobooks taxed the same?
No, e-books and audiobooks are not always taxed the same. Many European countries apply a reduced VAT rate to e-books and digital publications, but not to audiobooks. Even VAT rules have to keep up with the fast-paced digital world. Related reading: Extended Application of Reduced VAT Rates.
So when the latest bestseller comes out, you might want to read it rather than listen to it.
Do criminals have to pay VAT?
Yes, even criminals have to pay VAT. In 2010, a court in Sweden ordered a couple who had been selling counterfeit goods online to pay VAT on all their sales.
The couple appealed. They argued that it was illegal for the Swedish authorities to profit from illegal sales. But the original judgment was upheld.
Is gelato taxed differently if you eat it at a table?
Yes, in Italy gelato eaten at a table is charged the standard VAT rate, while gelato to go gets a reduced rate. Italy, famous for its delicious gelato, has an interesting approach to VAT on frozen treats. If you take your scoop away and eat it while strolling around, you'll pay less VAT.
So next time you’re in Italy, maybe get that ice cream (and VAT) to go.
What are the basic facts about VAT rates in Europe?
EU VAT rates follow a few shared rules, but each country sets its own rates within them. According to Your Europe, the EU's official business portal:
- The standard VAT rate in an EU country cannot be less than 15%.
- Countries may also apply one or two reduced rates to specific goods and services. These cannot be less than 5%.
- Hungary has the highest standard rate in the EU, at 27%.
- Luxembourg has the lowest standard rate, at 17%.
Outside the EU, the UK standard rate is 20%. Most groceries and children's clothing are zero-rated in the UK. Because most food is zero-rated but some is not, many of the quirky UK cases above are about where that line falls.
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Frequently asked questions
Why do some everyday items have different VAT rates?
VAT rules can depend on small details — like whether food is eaten hot or cold, taken away or consumed on-site, or even how it’s decorated. That’s why a chocolate-covered gingerbread man or a seated gelato might be taxed differently from their simpler counterparts.
What are some of the strangest VAT cases?
Famous examples include the Jaffa Cake debate over whether it’s a cake or biscuit, Pastygate in the UK, and Italy’s gelato VAT rules. These quirky cases highlight how complex — and sometimes amusing — VAT classifications can be.
Which EU country has the highest VAT rate?
Hungary has the highest standard VAT rate in the EU, at 27%. Luxembourg has the lowest, at 17%. No EU country can set a standard rate below 15%.
Are Jaffa Cakes cakes or biscuits for VAT?
For UK VAT purposes, Jaffa Cakes are cakes. A 1991 court case ruled in favor of McVitie's, so they are zero-rated rather than standard-rated like biscuits.
Is there VAT on hot takeaway food in the UK?
Yes. Restaurants and takeaways must charge VAT on all hot takeaway food and home deliveries, even though most food for human consumption is zero-rated.
Is there VAT on children's clothes in the UK?
No. Children's clothes and footwear are zero-rated in the UK. Children's car seats are taxed at the reduced rate of 5%.
