The sale, hire or loan of a live animal is zero rated for UK value added tax (VAT) provided that the animal is of a kind generally used in the UK as yielding or producing food for human consumption. This would include animals yielding meat or dairy products, poultry kept for providing food or producing eggs, bees kept for producing honey and most types of fish (but not including ornamental fish).
Where products are zero rated, no VAT is charged on the sale and the vendor does not need to account for any VAT on the supplies. The vendor retains the right to recover the VAT on expenses incurred in relation to the zero rated sales.
Animals kept for reasons not related to producing food are charged to VAT at the standard rate of 17.5% (20% from 4 January 2011). HM Revenue and Customs (HMRC) mention bumble bees, ornamental birds and fish, racing pigeons and horses as examples of animals whose sale or hire would be charged at the standard rate of VAT.
Not all animals that yield edible meat are zero rated, because of the requirement that they must be generally used in the UK as food for human consumption. HMRC gives the example of kangaroos as a type of animal whose sale as a live animal would not be zero rated for VAT. Also, animals that are removed from the food chain because they are unfit for human consumption due to disease would not qualify for the zero rating.
In the case of birds, the zero rating would extend to the sale of many types of chicken, turkey, duck and goose as well as game birds and ostriches. The sale of fish, including edible shellfish, would qualify but not the sale of fish for aquaria or ornamental fish such as koi carp. Fish used as live bait would only be zero rated if it is of a kind fit for human consumption.
Zero rating for animal food
Animal food is zero rated provided that it is labelled, packaged and advertised as animal food. Most of the items used as animal feeding stuff by farmers are zero rated. The ingredients for animal feeding stuff are also zero rated but only if they are themselves food, so flavouring and colouring agents bought for use in animal feeding stuff would be subject to VAT at the standard rate on the purchase.
Where an animal food product has more than one possible use, for example both as food for animals used for consumption and as pet food, the VAT treatment depends on how the product is held out for sale. Where medicine is incorporated in animal feed, the VAT treatment depends on the basic nature of the product. The product will be zero rated if the incorporation of the medicine does not alter the essential nature of the product as animal feed, while if the product is basically medicine it is subject to VAT at the standard rate, because medicines are not covered by the zero rating even if they are administered as part of animal feed.
VAT on pet food
Pet food is not covered by the zero rating and is therefore subject to VAT at the standard rate. According to HMRC pet species are cagebirds, cats, dogs, ferrets, aquarium and pond fish, guinea pigs, hamsters, gerbils, rats and mice. The only exceptions to this would be food for working dogs and laboratory animals. Dog food (other than biscuit or meal) is therefore zero rated if it is intended exclusively for working sheepdogs, dogs trained and used as gun dogs or racing greyhounds.
Where a product is specifically prepared as pet food, it is standard rated regardless of how it is held out for sale. A product is regarded as having been prepared as pet food if it has been subjected to one or more of the following processes:
The addition of colouring, flavouring, preservative or gelling agents; Mixing or blending of ingredients to meet specific nutritional requirements of a pet species; The cooking of meats or meat products; or The mixing or blending of four or more meats, fish or products using both fish and meat.
Food that is packaged and held out for sale as food for wild birds (other than poultry or game), for example a net containing peanuts to be hung from a bird table, is subject to VAT at the standard rate.
Other products and services
Where straw is held out as being for non-food use, the sale will be subject to VAT at the standard rate. This includes sales known to be to market gardeners, who will be using the product as compost, or industrial packers and other non-agricultural businesses.
If an owner of animals is allowed the exclusive use of stabling, this is an exempt supply of a right over land. An option to waive exemption (“option to tax”) is available and if exercised the supply becomes liable to VAT at the standard rate. This enables the supplier of the stabling to recover VAT paid on expenses related to the supply.
Livery services for horses that go beyond the mere occupation of a stable but include feeding, grazing, mucking out, grooming and arranging veterinary services, are subject to VAT at the standard rate (including the food provided). However if the stabling is considered an exempt supply of land, and the option to tax has not been exercised, the whole package of livery services is exempt from VAT.
The supply of grazing rights for horses, sheep or other grazing animals is zero-rated as animal feed. However where grazing is just a part of a package of livery services as mentioned above, the supply may need to be charged to VAT at the standard rate.
HMRC website www.hmrc.gov.uk
HMRC Notice 701/15 (March 2002)
“Value Added Tax” by Andrew Needham and Steve Allan, Bloomsbury Professional, 2009