Pets and Taxation Are We Paying too Much?

I recently posted up a small piece on our COAPE Facebook site about taxation and pets and the interest and debate it generated was phenomenal. It was even shared by a well-known dogs magazine and taken up in the veterinary press. So, for this blog, I thought you would enjoy an expanded version of that post.

A while ago, my lovely Springer, Mack was admitted into the intensive care unit (ICU) at Glasgow University Veterinary School, due to an obstructing abscess the size of a tennis ball above his larynx. He was there a few days and subsequently made a full recovery. The bill came to about £4,000. £800 of this was VAT, or value added tax, currently 20%. This got me thinking about a hypothetical question –

Should we be paying VAT on pets, given what they contribute to society?

In this post I want to explore a few ideas around this. First, by looking at the origins and the scope of VAT today, then by looking at the worth of the pet industry, and finally looking at what pets contribute back to society, not only in terms of psychological well-being, but in terms of hard cash too.

A short history of VAT

Value Added Tax came into being in the UK (it has existed in France since the 1950’s) in 1973 during the Heath government, as one of the conditions of the United Kingdom joining the European Economic Community (EEC). Before VAT came along goods were taxed through the Purchase Tax System, where the tax rate varied according to how ‘luxurious’ the goods were deemed to be. VAT is a mandatory system of taxation for all member countries of the EEC and must be charged on all goods and services.

Brussels does allow different rates for different kinds of goods and here in UK we currently have three rates –

a zero rate at 0% on books, magazines etc., human food, children’s clothes, medicines and health care, food and products for animals used for human consumption, construction industry, charity sales,
a reduced rate at 5% on utilities such as telephone, gas and electricity
and a 20% rate that applies to everything else.

The 0% rate is an oddity that is unique to the UK and not actually allowed under the EEC regulations. The UK was given a ‘temporary’ dispensation to use it, and although it has remained like this since we joined the EEC, this could be removed at any time. There is also an ‘exempt from VAT category’, which applies to services such as medical care by doctors, dentists etc., burials, charity fundraising, parking charges, etc. (See Her Majesty’s Customs and Excise (HMRC) website for a very clear account of VAT.)

When it comes to food, there are some farcical anomalies that have arisen over its definition.

As far as the government is concerned, food is deemed an essential item and it therefore carries the 0% VAT rate.
On the other hand, snacks are deemed non-essential so they carry the full 20% VAT rate.
Now here’s the thing, if you buy a bag of shelled almonds to make a cake, they are classified as a food and so the 0% of VAT applies.
However, If you buy a bag of almonds that have been roasted and/or salted, they are classified as a snack and so the 20% VAT rate is applied.

Here is what it says on the HMRC website –

Meaning of ‘nut’
“We interpret the word nut in its usual everyday meaning, rather than using a strict botanical definition. Included are peanuts, cashews, walnuts, pecans, almonds, chestnuts, brazils, hazelnuts, cobnuts, pistachios and macadamia nuts. All are zero-rated unless roasted or salted and sold out of their shells.”

A cake is classified as a food (0 VAT), while chocolate is classified as a snack (20% VAT). But what happens when you combine these 2 food types, such as in a Jaffa Cake? HMRC argued that Jaffa Cakes are snacks, while lawyers for the manufacturer argued that they were food. In this case, the lawyers won. There are many other similar examples, for instance what tax is applied to the same take-away food if it’s served warm or cold – just look up the ‘Pasty Tax’ furore that occurred in 2012.

The value of the UK pet industry

There are approximately 63 million people in the UK today and in approximately one in four UK households there is at least one dog and/or one cat. According to the 2013 PDSA Animal Wellbeing Report (PDSA, 2013), available on their website, the UK population of pets is estimated to be 7.8 million dogs, 9.5 million cats and 1 million rabbits. The Pet Food Manufacturers Association (PFMA, 2013) continues with estimates of 1 million caged birds, half a million guinea pigs, half a million hamsters, 400,000 horses and about 1 and a half million other ‘exotics’ including rats, mice, gerbils, lizards, snakes, tortoises and turtles, etc.

Here are some facts and figures to ponder –

As a nation we spend an average of £87 million a week on our pets making the pet industry as a whole worth an estimated £4.7 billion a year here in the UK, and a staggering $43 billion in the United States.
To put this into some context, in the UK the recreation and culture industry is worth £117 billion, restaurants and hotels £103 billion, food £98 billion, clothes and shoes £59 billion, cosmetics £15 billion, the music industry £3.5 billion, books £3.5 billion and cameras £500,000.
£4.7 billion worth of sales a year is a sizable sum, and this raises £1.6 billion for the government in tax.
Owning pets also saves the government money by reducing costs of the UK National Health Service (NHS) by an estimated £1.4 billion a year.
Adding the £1.6 billion raised in tax and the £1.4 billion saved from government spending gives us a figure of £3 billion. Now convert this figure into a 9 year Economic Cycle and we have £27 billion – this number is not far off 1p on the basic rate of income tax (ProPets, 2009)!

When it comes to VAT law relating to the sale of animals things do become rather convoluted (see HMRC, Animals and animal food, 2014) –

Domestic animals used for producing goods for human consumption such as meat, milk, eggs, wool etc. are zero-rated.
Honey bees are zero-rated.
‘Exotic’ meats, however such as kangaroo are standard-rated.
Most animals kept as pets are standard-rated, except if they are species normally used in producing goods for human consumption, for example a pet sheep, or an ordinary, none-ornamental rabbit.
An exception here is food-producing animals taken out of the human food chain on health grounds, these animals lose their zero-VAT rating.

What about VAT law and animal feeds?

HMRC state that “most food that is to be fed to animals is zero-rated”, but then they continue with a long list of exceptions that in reality means that most animal food is standard-rated.
Zero-rated food items include feeds used by farmers, raw meat, offal and fish (as long as it is not held out for sale as pet food) and working dog food that is not biscuit or meal (i.e. cereal-based, dry mixer, ‘Bonios’ etc.).
The definition of ‘working dog’ is very clear and includes dogs of any breed that herd sheep, that are trained and used as gun dogs and racing greyhounds that actually run races.
The definition of ‘working dog’ has nothing to do with breed.
Strangely, guide dogs for the blind are not considered as working dogs by HMRC. In 2012 David Blunkett, then Labour MP and well known for his own guide dog, Cosby, lobbied the Chancellor, George Osborne to zero-rate VAT on food for Guide Dogs. He was not successful.
For all animals including farm animals and pets, the cost of veterinary treatment and veterinary medicines is subject to the standard rate of 20% VAT. The only exception here are charities registered with the Charities Commission. These charities need to show their vet a certificate confirming that HMRC allows them a zero VAT rate for the costs of veterinary care and medicines.

Who, ultimately ends up paying all this VAT?

Businesses registered for VAT, which will include veterinary practices and most commercial farmers, suppliers etc. claim back the VAT they pay on the goods they buy so the VAT is passed down the chain of sale until it reaches the end consumer – you and me! But is this really fair for all pet owners? What about the dogs and other animals that bring enormous benefit to society?

We’ve been owning pets for hundreds of years and many writers have written scathing articles about how much money and time owning pets wastes. The discovery that pets actually save money by improving health is a relatively recent one.

Coronary heart disease is a stress related disease that kills more than 7 million people per year world-wide. A study carried out in 1980 (Friedmann et al., 1980) looking at survival rates of patients a year after being treated for a heart attack found that those who did not owned a pet were three times more likely to be dead. The reason for this, the researchers argued, must be because having a pet to walk and look after improved the mental wellbeing of these patients, making it less likely that they had another heart attack. This is the first time that such a link between pet ownership and human health had been considered, and since the 1980’s there has been a great deal of research done on what we now call Animal Assisted Interventions.

Two theories have been put forward to explain the science behind why pets have this positive effect on our own health and wellbeing ((Beck, 2003)) –

The social support hypothesis. The social support hypothesis, as the name suggests, is linked to our need for attachment to and engagement with others, we are a highly social species after all. Our natural tendency is to seek companionship at many different levels from getting married to joining organisations such as clubs and religious institutions. Pets can offer some of us a socially acceptable and desirable surrogate, this might be especially important for the socially isolated such as some elderly people, those living in remote areas etc.
The biophilia hypothesis. The biophilia hypothesis suggests that our early ancestors evolved with an innate predisposition to look out for signs of animals while on hunting expeditions as this increased the chances of a successful kill. There is a contradiction here, however (see Joye, 2011 for detailed arguments against the biophilia hypothesis). If we evolved an innate desire to creep up on animals and harm them, how did this turn into a desire to love them and protect them from harm?

An Animal Assisted Intervention

An Animal Assisted Intervention (AAI) is the intentional inclusion of living animals as part of a therapeutic or ameliorative intervention regime (after Serpell, 1996). The ultimate goal of an AAI is to improve the quality of life of the recipient at some level. An AAI could take the form of enabling individuals to interact with animals in social, recreational or educational ways such as children being taken on farm visits, or dogs being taken into a care hospice. In such cases, the AAI would be called an Animal Assisted Activity (AAA). Where pets are selected because they meet specific criteria as part of a goal-directed treatment plan, the AAI is called an Animal Assisted Therapy (AAT). The main difference between an AAA and an AAT is that the outcomes of the latter are recorded and measured along with the other components of the treatment plan. For AAA’s the outcomes are not formally assessed and measured (SCAS, 2014).

The value of AAI’s has been shown time and time again in many different areas of medicine and social care, including long-term illness and hospital stays, depression, post-traumatic stress disorder, obesity, autism spectrum disorder and child abuse.

Why does the Government’s definition of ‘working dog’ remain so stubbornly narrow?

“Faces that were once sad, lonely and filled with despair brighten dramatically as a white German Shepherd, a therapy dog named Snowball, comes lumbering down the quiet, antiseptic hospital corridor. Gone are the children’s thoughts of pain and suffering. In the place of tears and cries are giggles and smiles. Animal assisted therapy has enhanced the children’s ability to progress toward physical and psychological wellness. Scenes such as this one are being repeated all over the country. Therapy dogs are a daily sight in health care programs for children in the United States. From long-term care facilities to children’s hospitals to intensive care units, therapy dogs are being incorporated into patient treatment plans. Why make canine visitors part of health care programs for children? Simply stated, companion animals offer something that humans cannot—companion animals provide unconditional love and emotional support.” (Jalongo et al., 2004).

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References

Beck, A.M., Katcher, A.H., 2003. Future directions in human-animal bond research. Am. Behav. Sci. 47, 79-93.

Friedmann, E., Katcher, A.H., Lynch, J.J., Thomas, S.A., 1980. Animal companions and one-year survival of patients after discharge from a coronary care unit. Public Health Rep. 95, 307-312.

Her Majesty’s Revenue and Customs (HMRC), 2014. VAT. http://www.hmrc.gov.uk/vat/index.htm Accessed September 16, 2017.

Jalongo, M. R., Astorino, T. and Bomboy, N. 2004. Canine visitors: The influence of therapy dogs on young children’s learning and well-being in classrooms and hospitals. Early Childhood Education Journal 32: 9–16.

Joye Y., 2011. Biophilia in animal-assisted interventions fad or fact? Anthrozoös vol 24 no 1 pp 5 15.

Peoples Dispensary for Sick Animals (PDSA), 2013. 2013 PDSA Animal Wellbeing Report. https://www.pdsa.org.uk/pet-health-advice/pdsa-animal-wellbeing-report Accessed September 9, 2014.

Pet Food Manufacturers Association (PFMA), 2013. Pet Population 2013.
http://www.pfma.org.uk/pet-population Accessed September 16, 2017.

ProPets, 2009. Positive About Pets. http://www.propetsgroup.org.uk/index.html Accessed September 9, 2014.

Serpell, J., 1996. In the company of animals: a study of human-animal relationships (p. 90). Cambridge: Cambridge University Press.

SCAS – Society for Companion Animal Studies, 2014. Animal-assisted Interventions. http://www.scas.org.uk/animal-assisted-interventions/174-2/ Accessed September 16, 2017.