Customs to rake in £1m from VAT on magic mushrooms

Magic mushroom traders are facing a £1m tax bill after a Customs and Excise ruling that the hallucinogenic fungus is to be treated as a drug and not a food.

Magic mushroom traders are facing a £1m tax bill after a Customs and Excise ruling that the hallucinogenic fungus is to be treated as a drug and not a food.

The move comes just weeks after ministers ordered a clamp-down on the increasing number of shops and market stalls that sell the mushrooms. Guidance issued by Customs makes it clear that the magic mushroom must be subject to a 17.5 per cent VAT charge because it is eaten for its "stimulant" rather than "nutritional" effect.

In a letter written in response to an inquiry from a north London shop owner, the Customs' National Advice Service said: "Unfortunately the said mushroom does not qualify for zero-rating under ... the VAT Act 1994 and is therefore standard rated for VAT purposes at 17.5 per cent."

Customs argued: "It is evident from various magic mushrooms websites that you do not use it based on the amount required in a recipe, you use amounts based on what sort of 'trip' you want."

The letter, based on guidance from the Customs and Excise unit of expertise, added: "In these recipes, the foodstuffs are used as a vehicle for consuming the drug as opposed to ... an essential ingredient. Accordingly the amount recommended to be used in recipes dictates how much you 'trip' as opposed to any ordinary reason."

There are estimated to be between 200 and 300 shops selling magic mushrooms and many other businesses trading online. The bulk of the produce is imported from the Netherlands. It has been suggested that the Treasury could be in line for a £1m mushroom tax windfall.

Mushroom traders argue that the Government is guilty of hypocrisy by making it a criminal offence to sell prepared mushrooms while at the same time making money from taxing the sale of fresh mushrooms after shops were raided.

Chris Territt, from the Psyche Deli in north London, said: "Customs and Excise have reviewed the situation for us and, in their opinion, the mushrooms, which are mostly imported under their supervision, are not only legal but VAT-able. Consequently the Government is taking 17.5 per cent of every mushroom transaction. If the Government thinks we're breaking the law, how can it be taking our money?"

Another mushroom trader said she was having to pay backdated VAT. Sylvia Chandler, of the Federation of Shamanic Entheogens Retailers and Wholesalers, said: "It's ridiculous that the Government thinks the mushroom is a drug and not a food. The chemical in the mushroom belongs to the same series of serotonin chemicals that naturally occur in the human body."

Customs argues that the average person would "consider" the magic mushroom to be a drug. A spokeswoman said the VAT advice applied only to "fresh" mushrooms and that once they were "prepared" for sale, by freezing, drying or making tea, the mushrooms were classified as a class A drug.

TAXING ISSUES

• Gingerbread men dipped in chocolate are subject to VAT at 17.5 per cent, but those covered with caramel are not. The chocolate makes it a sweet rather than a tax-free biscuit.
• The great debate over whether Jaffa Cakes are a VAT-able chocolate-covered biscuit, or a tax-free cake caused such disagreement that it went to tribunal in 1991. McVitie's won its argument that its product was a cake by baking a foot wide Jaffa Cake and passing it around in the hearing.
• Women used to pay £45m a year in VAT on tampons until Gordon Brown decided to treat them as a non-luxury item and lifted the tax four years ago.
• Women who buy size five or larger shoes have to pay VAT whereas those with smaller feet qualify for children's tax exemptions.