Cracking the VAT code on food categories
Introduction
VAT’s relationship with food is complex and it seems there is a never ending conveyor belt of court cases around the VAT treatment of certain foods. It is a lot more complex than it seems when it comes to VAT code on food categories.
The latest to go through this legal ordeal which resulted in the delving into the complexities of VAT categorisation is Duelfuel Nutrition Ltd ‘Duelfuel’.
Duelfuel vs HMRC
Duelfuel became involved in a conflict with HMRC regarding the tax status of its sports nutrition goods. The initial matter, which was overseen by the First-tier Tribunal (FTT), revolved around the crucial question of whether the products (which are marketed as cakes), should be classified as such or whether they are more of a confectionery item which would influence the VAT rate.
Duelfuel’s aims were to provide both pre-workout energy and post-workout protein intake through a range of flapjacks and cakes. Despite being marketed and designed with the intention of being cakes, HMRC argued that the products belonged in the confectionery classification, resulting in their standard rate VAT treatment.
Cake or fake
During the tribunal, the FTT looked closely at many different aspects of the products.
To decide what category they belonged to they looked at…
1 What they were made of
2 How they were packaged and advertised
3 How people typically ate them
Even though the products looked like cakes, they were quite different in terms of what they were made of, how they tasted, and who they were meant for compared to regular cakes.
The fact that they contained protein powders and were marketed for their health benefits rather than just being tasty treats played a big role in the tribunal’s decision.
Tax law definition is final!
Duelfuel argued that their products should be taxed at zero rate like cakes, however HMRC’s position won out. This was backed up by the tax law’s broad definition of ‘confectionery’, which includes sweet foods eaten with fingers. The FTT’s decision highlights the careful balance between legal definitions and the product’s real-world application, which ultimately determined how the products were to be taxed.
In a similar dispute, Innovative Bites, who are an importer of American “Mega Marshmallows,” challenged HMRC’s decision to apply VAT to the marshmallows. They argued that since the marshmallows were intended to be roasted over a flame, they should be considered ingredients rather than sweets and not be subject to VAT.
Complexities of VAT classification
The tribunal’s decision reflected the complexities of VAT classification, in a similar vein to the Duelfuel case, considered both the legal interpretations and practical factors.
In this case it was the, the physical change that marshmallows undergo when roasted which played a key role in determining how they would be treated for VAT. The FTT agreed that marshmallows were cooking ingredients rather than finished sweets.
Conclusion
Both of these cases highlight the intricate details involved in VAT classification, where legal definitions intersect with practical considerations to determine the correct tax position. From examining the product compositions closely to analysing how they are consumed, VAT disputes often involve navigating through layers of legal complexities, impacting both businesses and consumers.
Next Steps
Here at ETC Tax, we have a vast amount of experience in dealing with these types of VAT intricacies. From our experience we know that when the question of VAT comes along, the tax at stake is usually quite high.
If you or your clients require any support specifically with regards to VAT, please do get in touch.
