Christmas is upon us, and we at ICAEW are keen to offer our insight to help you through the festive season.
With that in mind, I would like to remind everybody of the tax takeaways from the Twelve Days of Christmas - with a particular focus on VAT.
A Partridge in a Pear Tree
As a tree used for the production of edible fruit, a pear tree would be zero-rated for VAT. The partridge, however, would be more complicated. I remain partial to the traditional turkey, but respect the notion of a partridge as a festive creature in its own right. Buying a partridge to cook and eat would also be zero-rated for VAT, but should you purchase it for ornamental purposes, it would be standard-rated at 20%.
Two Turtle Doves
Turtle doves are a protected species; it is therefore illegal to buy them, either as an ornamental bird or as a source of food. Even one’s “true love” should not be buying turtle doves to send at Christmas. However, the two turtle doves in the traditional song are said to represent the two testaments of The Bible – old and new. You don’t have to pay VAT on The Bible.
Three French Hens
In France, you pay VAT of 5.5% on all food. Importing the hens from France would mean you then also have to account for VAT at the rate payable had you bought them from a UK supplier. In the UK, VAT on poultry intended as food is zero-rated, or standard-rated if ornamental (see the partridge). The options for this Christmas are clear, but Brexit trade negotiations could impact the cost and viability of French hens in the future.
Four Calling Birds
Interestingly, the four famous “calling birds” are in fact blackbirds. From one jolly rhyme to another, I understand blackbirds to be fantastic when baked in a pie. However, the sale of such a pie could be liable for tax. If it is kept and sold warm, the standard rate of VAT will be due. However, if it is served straight from the oven or left to cool down it is zero-rated. During the festive season, this could also have important implications for mince pies.
Five Gold Rings
Investing in pure gold makes greater financial sense than purchasing gold rings or jewellery on the high street, where you will be paying VAT at 20%. There are other tax advantages too, for example, if you were to purchase gold coins produced by the Royal Mint they would be free of capital gains tax when sold, as they qualify as legal tender.
Six Geese a-Laying
This is a very bird-heavy gift list. To their credit, HMRC has gone to great pains to detail those breeds of geese that are zero-rated for VAT, namely Brecon Buff, Chinese Commercial, Embdem, Roman and Toulouse. However, in line with that used for food, poultry used for its eggs is VAT-exempt; the fact that these geese are a-laying should cover that.
Seven Swans a-Swimming
All unclaimed mute swans in the UK are owned by either the Queen or the Worshipful Company of Vinters and Dyers. This has been the case since medieval times. It is a criminal offence to harm a swan in any way, so capturing or eating one, even at Christmas, would ruffle a few feathers. You could import a swan into the UK, but because they are not generally regarded as available for consumption, it would be subject to VAT.
Eight Maids a-Milking
With all of the chocolate consumed at Christmas, one has to appreciate the importance of milk. It is reasonable to assume that milkmaids will live on the farm on which they work. Accommodation at your place of work is exempt from tax and National Insurance if employees can’t work properly without it. HMRC specifically mentions agricultural workers as an example in this respect. It is also important to consider the cows they are milking; under the so-called “herd basis”, dairy cows can be recorded as assets, because they are being kept for the products that they produce, rather than for resale.
Nine Ladies Dancing
The financial implications here depend on what type of dancing the ladies are engaged in, and where they choose to dance. Dance classes are considered education, and as such are exempt from VAT, as long as they are supplied by an “eligible body” such as a school. Freelance teachers are not “eligible bodies”. Additionally, Theatre Tax Relief is available for companies producing live ballets, as long as a series of other conditions are met. This no doubt provides plenty of benefit for that festive favourite, the Nutcracker.
Ten Lords a-Leaping
Many Lords are wealthy, which is perhaps why ten of them would leap for joy. They will likely have estates which exceed the £325,000 inheritance tax threshold. The rate of inheritance tax is 40% on everything above this allowance, but this can be reduced to 36% if 10% or more of the estate is left to charity. If your own estate exceeds the threshold, you may want to consider giving financial gifts this Christmas. You can give a total of up to £3,000 per year. If you didn’t use last year’s annual allowance you can carry it forward, but only for one year.
Eleven Pipers Piping
An experienced piper will be quite a hot commodity over the festive season, particularly on New Year’s Eve. Unless employed by a company, those who make income from playing will need to be registered as self-employed, or as a sole trader if they run it as a business individually. In either case, the piper must register as such with HMRC, keep records of all earnings and costs, and file a tax return each year. And very soon, with Making Tax Digital on the way, our self-employed piper may need to consider moving their accounting records onto software or a smartphone app. Of course, that assumes they have danced their way up to the VAT threshold by April 2019 when it starts.
Twelve Drummers Drumming
It is highly likely you would rather download a more traditional version of the Twelve Days of Christmas, and listen to twelve drummers drumming it. Since 2015, the VAT on streaming and downloading music has been based on where the consumer is located. This means internet businesses can no longer save money by supplying digital services from EU jurisdictions with a low rate of VAT.
May I wish all of our members - and anybody else reading - a very Merry Christmas and a Happy New Year.