The tax code is a dog's breakfast

By Ben Ramanauskas, Policy Analyst 

After the annual dog show, Crufts, it’s clear that the UK is a nation of animal lovers. According to the PDSA, in their appropriately named “Paw” report, 49 per cent of UK adults own a pet. This breaks down to 11.1 million cats, 8.9 million dogs, and 1 million pet rabbits. Millions of families around the country wouldn’t be complete without their furry friends.

As fun as pets are, they are not cheap. Households can expect to spend between £70 and £105 taking care of their dog every month. As for cats and rabbits, owners will spend an average of £70 on a cat and the same amount on a pair of rabbits each month. Over the course of the life of their pets, households will spend between £6,5000 and £17,000 on a dog, at least £12,000 on a cat, and up to £9,000 on a pair of rabbits.

At this point, you may be wondering: what on earth has this got to do with the TaxPayers’ Alliance? Like in pretty much every other area of our lives, part of these high costs are due to taxation.

For example, when you buy a dog or a cat as a pet, the greedy jackals at HMRC get their claws on your money in the form of VAT. The same is true for horses, birds, and some fish. The only reason why rabbits escape being charged VAT is because they are ‘normally used for human food production’. We’re not making this up. In essence, the taxman lets you off by assuming that there is a reasonable chance that you might have to eat your beloved pet if times get tight.

It’s not just buying your pet which attracts taxes. You will almost certainly have to pay VAT when purchasing most pet food, including canned and packaged food and dog biscuits. However, if the food is for a sheep dog or a racing greyhound, then it is zero rated for VAT purposes. As for food for birds: if that is weighed out in store and placed in a bag, then it does not attract VAT; but if it is packaged and prepared, then you will be charged VAT.

Buying a new toy for your dog? You’ll be charged VAT. A cage for your budgie? You’ll pay VAT on that as well. A climbing frame for your cat? Yes, you’ve guessed it. There’s VAT on that, too.

When pets become ill then they often need to be taken to the vet. Vet fees are expensive, and many people find it unaffordable to get the treatment they need for their pets. One of the reasons why vet bills are so high is because VAT is levied on them at 20 per cent.

Given the high cost of vet bills, many pet owners take out insurance to cover the costs. However, pet insurance is subject to insurance premium tax, with the costs being passed onto the policy holder. Another hidden charge there, too.

All of these odd taxes on animals give new meaning to the phrase ‘cash cow’.

Pet taxes provide some of the best examples of our ridiculous and outdated tax system. The many different exemptions for VAT serve to highlight just how ludicrous the VAT rules are. Why should you pay VAT to perch some animals not others? Or, why should food for some animals be exempt from VAT, while others are subject to the full 20 per cent? If Cruft-going animal lovers realised how much government levies from their pets, they’d rightly go barking mad.

It actually makes a lot of sense to simplify something like VAT. On average, it takes a business longer to comply with VAT than with corporation tax, and a major contributor is the complex maze of VAT rates and exemptions. Some manufacturers have to spend a small fortune doing battle with HMRC, arguing that their product should not be subject. All of that money, time and effort could be better spent on more productive activities – one of our top priorities, given the UK’s sluggish productivity growth. At the very least, pet shops could stop worrying about extra charges for pre-packaging their bird feed.

Fundamentally, removing exemptions and different rates would be good news for consumers. A VAT system with a broad base would mean that the rate could be set lower, helping reduce the cost of living for hard-pressed households.

That would allow us to more effectively help the poorest in society. One of the reasons behind lower rates and exemptions is to make certain goods, such as children clothes, more affordable. However, these things are purchased by rich and poor alike, so it’s an inefficient method of providing relief to people on lower incomes. At the same time, many poorer households own a pet, yet those damaging 20 per cent VAT rates apply nonetheless.

But how can we make the system fairer? We should instead scrap the exemptions and lower rates, and use this to fund increases to the income tax personal allowance and to take the lowest earners out of national insurance contributions. That way, if you wanted to spend more of your own money on much cheaper dog treats, you’d be more than welcome.

The truth is that the current VAT system is a complete dog’s breakfast. The government ought to make reforming our overwrought, ineffectual and baffling tax system a priority. A broader, flatter tax system would be good for businesses, good for the British economy and good for those on the lowest incomes. And, of course, good for our beloved pets too.