Avoid paying VAT - the legal way

We've looked at what to buy before the VAT increase, ways to offset the hike and how to fight back against VAT, but can you ever avoid paying it altogether?


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It’s nearly a month since the standard rate of VAT increased from 17.5% to 20% and there's very little suggestion from the government that it's ever likely to come back down again.

However, there are ways to avoid it. Some are serious, some are silly, and some are more for your own satisfaction than for any major financial gain. Read on for our tips on legal ways you can escape paying VAT...

Make your own sandwiches

You don't pay VAT on most food stuffs, especially basic ingredients such as bread, salad, fruit and cheese.

But you do pay VAT on food bought in restaurants and ready-made sandwiches. That's on top of what the retailer or restaurant needs to charge to cover their overheads and make a profit.

It's much cheaper - and usually healthier - to make your own lunch at home, so get into the discipline of taking a homemade sandwich for lunch every day and the savings will quickly mount up.

Buy biscuits carefully

Is a Jaffa Cake a biscuit or a cake? This is a tax question that troubled some of the brightest legal minds in the country for longer than it probably should have.

While VAT is charged on chocolate-covered biscuits, it's not charged on chocolate-covered cake. The manufacturers of Jaffa Cakes went to court arguing that their product was indeed a cake and won - so no VAT is charged on those or other more traditional cakes.

One of the crazier VAT rules concerns gingerbread men. There's no VAT charged if the figure has just two chocolate splodges, for example, for its eyes. But, if it has chocolates as buttons too then VAT is payable, so go for the under-dressed gingerbread man wherever possible!

Give books as presents

A carefully chosen book can be a really thoughtful present and, best of all, there's no VAT payable on them.

The same is true for magazine subscriptions, so giving someone the gift of reading can be a great financial decision too.

Don't buy drinks on the go

Most drinks fall into the VAT category, so you'll pay it on colas and other drinks you might buy as a treat or with your lunch.

But it's not payable on teas, coffee, milk or hot chocolate, so buy these from the supermarket and carry them with you if you want to avoid the tax. After all, it's not like drinking hot chocolate is a hardship…

Holiday overseas

While British breaks can be great fun, you do pay VAT on hotel accommodation booked and used within the UK, likewise rented holiday cottages, car hire and days out.

But you don’t pay VAT on travel, or on most overseas package holidays, so you can sidestep the tax by heading abroad for your break.

Of course, that can turn out to be more expensive generally, once you factor in other costs. On top of that, you can’t avoid local taxes in your resort, which will be included in the cost of your tickets and bookings.

For example, Rome levies a tourist tax on hotels.

Make your own smoothies

Fruit smoothies are tasty and good for you, so you might assume there's no VAT payable as the government tries to encourage healthy living.

However, VAT is payable on these drinks, just as it with colas and other fizzy pops.

Last year, drinks manufacturer Innocent Smoothies lost a case in which it tried to argue that its drinks were "liquefied fruit salads".

Still, there's no VAT payable on raw fruit, so why not make your own? It's cheaper and there's less packaging, which is better for the environment too.

Buy kids clothes

There's no VAT payable on kids clothes or shoes, but you do pay the tax on toys.

So, if you need to buy a friend's offspring a gift, why not make it something they can wear instead? This tip might not make you the most popular aunt or uncle in town, but it will mean you avoid VAT.

Adults with child-sized feet might even want to take advantage of this exception and invest in some children's footwear instead of their own, more expensive alternatives.

Buy from overseas sites

If you're buying films and games from an overseas site, you may be able to legally sidestep VAT.

For example, Play.com operates from Jersey, meaning it does not have to pay VAT. If your purchase costs less than £18 then you won't have to pay VAT.

Goods with a higher value will be subject to the tax, which will be included in the advertised price.

Don't pay VAT to crooks

Never ever pay VAT if you have the slightest suspicion that the business charging you isn't handing it over to the taxman.

Some smaller firms providing services like building work may charge customers VAT but simply add 20% to their own profits.

In fact, Ian Liddell-Grainger MP, chairman of the All-Party Parliamentary Taxation Group, recently told the BBC's Money Box programme that this "blatant fraud" continues because the penalties for cheating on VAT are so low.

You can check a company is registered for VAT by calling the HMRC helpline on 0845 010 9000, so don’t let your hard-earned cash go towards lining the pockets of cheats.

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