House of Commons Library

VAT on sanitary protection

Published Monday, May 14, 2018

This note discusses the way sanitary protection is charged VAT - more specifically, the Labour Government’s decision, announced in the March 2000 Budget, to introduce a 5% rate on sanitary protection, the lowest rate currently permissible under EU VAT rules, and the current Government’s proposal to zero-rate this supply.

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VAT is charged on the supply of all goods and services, unless specifically exempt, either at the standard rate - currently 20% - or the zero rate.  In September 1997 a reduced VAT rate of 5% was introduced on the supply of domestic fuel and power.[1]  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).[2] The scope of the 5% rate is set out in, HM Revenue & Customs, Women’s sanitary protection products – VAT Notice 701/18/02, July 2011.

There has been a long-running campaign for sanitary protection to be zero-rated, in line with the UK’s practice in zero-rating food, children’s clothing and books. However, the UK’s discretion in determining the structure of VAT, as with all Member States, is limited by European VAT law, and to date the introduction of a new zero rate would contravene the current agreement on VAT rates.  There is provision for Member States, should they choose, to charge a reduced rate of VAT - between 5% and 15% - on this supply. 

In October 2015 the Government confirmed it would seek a change in EU law to allow any rate of VAT to be applied to sanitary protection, as part of a review of EU VAT rates to be undertaken by the European Commission in 2016.[3]  In March 2016 the European Council confirmed that the Commission’s initiative would “include proposals for increased flexibility for Member States with respect to reduced rates of VAT, which would provide the option to Member States of VAT zero rating‎ for sanitary products.”[4]  The next month the Commission published its ‘VAT Action Plan’, including plans to modernise the EU legal framework for VAT rates, although no definitive proposals were published at the time.[5]

The Government included provision in the Finance Bill 2016 to allow for sanitary protection to be zero-rated, once the UK had discretion to do this.[6]  When debated in Committee Treasury Minister David Gauke said that the Government anticipated the zero rate being in place by 1 April 2017,[7] but as yet the Government have been unable to give a definitive date in the absence of any amendment in the EU VAT rules.

In January 2018 the European Commission finally published proposals to overhaul the EU rules on VAT rates – in effect, 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]

However, there is no date set for when this legislation might be implemented. The Government’s explanatory memorandum on the draft text notes, “previous discussions on VAT rates have shown that Member States hold a wide range of views and therefore, swift progress … is unlikely.”[9]

Moreover there is considerable uncertainty as to the relevance of this body of EU VAT law for the UK’s discretion in setting VAT rates, following the EU referendum in June 2016, and the Government’s decision to trigger Article 50 – the two-year period for the UK to leave the EU – in March 2017.[10] In April this year the European Scrutiny Committee published a report on a series of proposals by the Commission for reforming the EU’s VAT system, including the draft VAT rates directive. It noted that, to date, the Government has not published details of the implications of Brexit for the UK’s VAT system.[11]

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.[12] 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 have been made since then, bringing the total amount of monies given to £47m.[13]

Notes : 

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

[2]    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.

[3]    PQ16882, 26 November 2015

[4]    European Council press release 143/16, European Council conclusions 17-18/3/2016, 18 March 2016

[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]    Public Bill Committee, Fifth sitting, 7 July 2016 c146. This provision now forms s126 of FA2016.

[8]    European Commission press notice, VAT: More flexibility on VAT rates, less red tape for small businesses, 18 January 2018. Full details are on the Commission’s site.

[9]    HM Treasury, Proposal for a Council Directive amending Directive 2006/112/EC as regards rates of VAT – explanatory memorandum, 8 February 2018 para 32

[10]   For details see, Brexit timeline: events leading to the UK’s exit from the European Union, Commons Briefing paper CBP7960, 12 March 2018.

[11]   Value Added Tax: EU proposals for reform and the implications of Brexit, HC 301 of 2017-19, 3 April 2018. On the wider questions Brexit poses for the UK’s VAT, excise and customs regime see, The Taxation (Cross-border Trade) Bill, Commons Briefing paper CBP8126, 11 May 2018.

[12]   HC Deb 25 November 2015 c1368

[13]   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

Commons Briefing papers SN01128

Author: Antony Seely

Topic: Taxation

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