VAT on sanitary protection

Generally VAT is charged on the supply of all goods and services, unless specifically exempt, at either the standard rate – currently 20% – or the zero rate.[1]  In September 1997 a reduced VAT rate of 5% was introduced on the supply of domestic fuel and power.[2]  Since then the coverage of the reduced rate has been extended to a small number of other supplies including, the installation of energy saving materials (from 1 July 1998), children’s car seats (from 12 May 2001), and sanitary protection (from 1 January 2001).[3]

There has been a long-running campaign against any VAT being charged on sanitary protection – the so-called ‘tampon tax’ – and for it to be zero-rated in the same way as food, children’s clothing and books. However, in the past EU-wide rules on VAT rates have been an obstacle to doing this. Although the EU agreement on VAT rates has allowed Member States, should they choose, to charge a reduced rate of VAT – between 5% and 15% – on certain specified supplies, including sanitary protection, the introduction of a new zero rate would contravene these rules.

In October 2015 the Government confirmed it would seek a change in EU law to allow sanitary protection to be zero-rated, as part of a forthcoming review of EU VAT by the European Commission.[4]  In April 2016 the Commission published its ‘VAT Action Plan’, including plans to update these rules on VAT rates,[5] and the Government included provision in the Finance Act 2016 (specifically section 126), to allow for sanitary protection to be zero-rated, once the UK had discretion to do this.[6]  At the time it was anticipated that a zero rate could be in place by 1 April 2017.[7] However the Commission’s proposals were not published until January 2018; in brief, the Commission proposed to reverse the current approach:

In addition to a standard VAT rate of minimum 15%, Member States would now be able to put in place:

• two separate reduced rates of between 5% and the standard rate chosen by the Member State;
• one exemption from VAT (or ‘zero rate’);
• one reduced rate set at between 0% and the reduced rates.

The current, complex list of goods and services to which reduced rates can be applied would be abolished and replaced by a new list of products (such as weapons, alcoholic beverages, gambling and tobacco) to which the standard rate of 15% or above would always be applied.

To safeguard public revenues, Member States will also have to ensure that the weighted average VAT rate is at least 12%. The new regime also means that all goods currently enjoying rates different from the standard rate can continue to do so.[8]

The relevance of these EU-wide rules has receded, with the UK’s departure from the EU on 31 January 2020.[9] The UK has been required to remain compliant with EU law, including VAT law, during the ‘transition period’ – the period set for the negotiation of a new UK-EU relationship.[10] In anticipation of the transition period being completed by the end of 2020, in the 2020 Budget the Chancellor, Rishi Sunak, announced that a zero rate would be charged on sanitary products from the new year.[11] With the completion of a new trade agreement with the EU, and the end of the transition period, this new zero rate was introduced from 1 January 2021.[12] Details of the coverage of the zero rate are in, HMRC, Women’s sanitary protection products – VAT Notice 701/18/02, 4 January 2021.

It is worth noting that the financial impact of cutting VAT on this supply from 5% to zero is relatively small; the annual cost of the new zero rate is estimated to be £15m.[13]

In the 2015 Autumn Statement the then Chancellor George Osborne announced that the Government would set up a new scheme to provide grants for women’s charities, funded by receipts from VAT on sanitary protection.[14] Initially the Tampon Tax Fund would provide a £5m grant split between four charities (the Eve Appeal, SafeLives, Women’s Aid, and The Haven). Three more rounds of grant funding were made subsequently, bringing the total amount of monies given to £62m.[15] Following the 2020 Budget the Department for Culture, Media & Sport (DCMS) invited applications for the next round of funding. The applications process closed on 7 June 2020,[16] and details of the 12 projects to share £15m in funding were announced on 27 November 2020.[17] Following the introduction of the zero rate on 1 January, on 21 May 2021 DCMS launched the final round of Tampon Tax Funding.[18] Applications closed on 4 July. DCMS anticipate that individual grant agreements will be finalised with successful applicants in Autumn 2021.[19]

Notes

[1]   HM Revenue & Customs (HMRC) publish guidance on the VAT treatment of a variety of goods and services on Gov.uk.

[2]   Initially zero-rated, this supply had been charged an 8% rate from 1 April 1994.

[3]   Goods and services charged the 5% reduced rate are listed in schedule 7A to the VAT Act 1994, as amended.  Group 4 to the schedule covers women’s sanitary products.

[4]   PQ16882, 26 November 2015

[5]   European Commission press notice, VAT Action Plan: Commission presents measures to modernise VAT in the EU, 7 April 2016. See also, Action Plan on VAT: Questions and Answers (Memo 16-1024), 7 April 2016

[6] HMRC, VAT: zero-rating of women’s sanitary products: tax information & impact note, 24 March 2016.

[7]   As noted by Treasury Minister David Gauke (Public Bill Committee, Fifth sitting, 7 July 2016 c146).

[8]   European Commission press notice, VAT: More flexibility on VAT rates, less red tape for small businesses, 18 January 2018. Negotiations on the proposals are ongoing, as noted on Commission’s EUR-lex site.

[9] For a narrative of events leading up to the UK’s exit see, Brexit timeline: events leading to the UK’s exit from the European Union, Commons Briefing paper CBP7960, 6 January 2021.

[10] Letter from the Financial Secretary to the European Scrutiny Committee, “EU legislative proposals on VAT”, 5 December 2018

[11] HC Deb 11 March 2020 c284; see also, Budget 2020, HC 121, March 2020 para 1.176

[12] HM Treasury press notice, Tampon tax abolished from today, 1 January 2021

[13] Budget 2020, HC 121, March 2020 p66 (Table 2.1 – item 17)

[14] HC Deb 25 November 2015 c1368

[15] See, PQ41191, 5 July 2016; DCMS press notice, Charities across the UK benefit from Tampon Tax Fund, 30 March 2017, Women and girls set to benefit from £15 million Tampon Tax Fund, 26 March 2018, Charities encouraged to bid for £15 million Tampon Tax Fund, 29 November 2018

[16] DCMS, Tampon Tax Fund application form: 2020-2021 funding round, updated 21 May 2020

[17] DCMS press notice, Thousands of women and girls to benefit from £15m Tampon Tax Fund, updated 4 December 2020; PQ121929, 2 December 2020

[18] DCMS press notice, Final round of tampon tax fund launched, 21 May 2021

[19] DCMS, Tampon Tax Fund 2021-2022 – Guidance for Applicants, updated 23 June 2021