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HM Revenue and Customs Brief 36/14 - VAT liability of a food item

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Published 13 October 2014

Purpose of this brief

This brief sets out HM Revenue and Customs’ (HMRC) position following the decision of the First Tier Tribunal. The case concerned the VAT liability of a food item and whether or not it was confectionary (standard rated) or a cake (zero-rated)?

Readership

This Revenue and Customs brief is aimed at businesses that manufacture and/or sell this type of confectionery known as ‘snowballs’ that are the same as those manufactured by Lees of Scotland and Thomas Tunnock Ltd.

Background

Both taxpayers challenged a previous ruling that ‘snowballs’ were standard rated confectionery by claiming they were also cakes and submitted voluntary disclosures for VAT they claimed was overcharged. HMRC disagreed with this view and so the matter was decided by the First Tier Tribunal.

The Tribunal Decision

The Tribunal considered what factors should be considered when identifying whether a product is a cake. They used a number of factors derived from the authorities that fell to be weighted in the balance, namely:

  • ingredients
  • process and manufacture
  • unpackaged appearance
  • taste and texture
  • circumstances of consumption
  • packaging
  • marketing
  • self life
  • name/description
  • ‘how it behaves’ after it is removed from packaging

In keeping with previous classification exercises the Tribunal acknowledged that there are no objective tests that can be imposed to determine whether a particular item of confectionery is or is not a cake, and that each case must turn on its own particular facts.

The Tribunal did not dispute that these snowball products are confectionery. After considering all of the above factors they accepted that whilst these snowballs do not have all of the characteristics of a cake they decided that they do have sufficient characteristics of a cake for them to be characterised as a cake. This means that they can be zero rated for VAT purposes.

Changes to HMRC’s policy

HMRC consider that the borderline between confectionery and cake causes few problems, but with the ever changing selection of confectionery available there will always be some products whose status as cakes is not necessarily self-evident. These snowballs are an example of this type of product. The Tribunal has made its decision based upon the particular facts before them and HMRC have accepted that decision and will be updating their guidance in respect of this type of snowball in due course.

In this case a ‘snowball’ was found to be a dome of marshmallow coated in any combination of the following:

  • chocolate
  • sugar strands
  • carob
  • cocoa
  • coconut

which may or may not include a jam filling. Of course, products which are also called ‘snowballs’ but not the same as those in this case may not be zero-rated.

Implementation of the Tribunal ruling

As a result of this Tribunal decision HMRC is changing its policy on the VAT classification of this type of snowball confectionery. Guidance and Public Notice 701/14 Food will be updated shortly to reflect these changes in VAT treatment.

Claims and Retrospective Action

If you have supplied ‘snowballs’ that are the same as those in this case, you may wish to refer to Public Notice VAT 700/45 ‘How to correct VAT errors and make adjustments or claims’ explains how to go about claiming a refund. Any claims made will be subject to the unjust enrichment rules and the 4 year CAP in line with normal HMRC procedures.


About the Author

© Crown Copyright 2014.

A licence is needed to reproduce this article and has been republished for educational / informational purposes only. Article reproduced by permission of HM Revenue & Customs.



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Article Published/Sorted/Amended on Scopulus 2014-10-16 09:02:11 in Tax Articles

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