Keeping the VAT Inspector Sweet

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Negotiating the VAT rules is a complex business, considerable risk attaching to errors. But one recent tax tribunal case – which the taxpayer won – made more entertaining reading than many.

Afternoon tea is one of those quintessentially British institutions, its beginnings usually traced to one of Queen Victoria’s ladies in waiting. Complaining of a ‘sinking feeling’ mid-afternoon, the lady in question had a pot of tea and light bites brought to her dressing room. The rest, as they say, is (very British) history. So what more appropriate than to find the VAT tribunal debating the correct VAT classification of ‘Raw Choc Brownies’? The business involved had treated sales as standard-rated for four years, but had since decided this was an error. It contended that the brownies should be taxed as zero-rated cakes, claiming a refund of around £300,000. HMRC claimed the brownies ‘did not display enough characteristics of a cake so to qualify’. The business claimed the products ‘were not sufficiently sweet to constitute confectionary’. The importance of this lies in the fact that in VAT law, cakes are generally eligible for zero rating as food items, whereas confectionary items are standard-rated.

The tribunal heard that the products were individually wrapped bars produced by cold compression of ingredients chosen to be as ‘natural, unprocessed, hypoallergenic and as nutritionally beneficial as possible’. It deliberated on competitor brownies, Battenberg Bars, whole Victoria sponge cake, Tunnock’s Tea Cakes, and Cadbury’s Mini Rolls amongst a host of others. Manufacturing process, unpackaged appearance, taste, texture, how and when the bars were eaten, how they were marketed and how they behaved when removed from packaging, were all considered.

The tribunal decided the nub of the matter was whether an ordinary person would conclude they had been offered a cake when presented with the brownie. Would it look out of place on a plate of cakes? ‘Put alongside a slice of traditional Victoria sponge, a French Fancie and a vanilla slice … the Products may look out of place… put alongside a plate of brownies, or … at a cricket or sporting tea … the Products would absolutely not stand out as unusual.’ The decision paved the way for a sizeable VAT repayment.

The case reinforces the point that VAT rules on ‘food’ need careful attention to detail and that HMRC’s interpretation of the legislation is sometimes open to challenge. We should be delighted to be of assistance with any of the technicalities of VAT. Please contact us for help keeping the VAT inspector sweet.

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