Overview of Food Bars VAT Zero Rated?
In WM Morrison Supermarkets PLC v Revenue and Customs [2023] UKUT 20 (TCC) we were served an appetising analysis of the VAT effects of certain food bars. This judgment will no doubt have stimulated some interest similar perhaps to that sparked in the jaffa cakes and United Biscuits (LON/91/0160) case.
Given the matter concerns food there is some slight exaggeration on occasion in the account provided here when relying on the position of how the First Tier Tax Tribunal (“FTT”) and Upper Tribunal looked at the matter. This is merely an attempt to make this a palatable post for the reader.
The FTT declined to accept WM Morrison Supermarkets Plc (“Morrisons”) proposition that products such as Organix Bars and Nakd Bars (“the Bars”) were zero-rated as food for human consumption but instead considered these products were within the confectionary exception pursuant to Item 2 of Group1 of Schedule 8 of the Value Added Tax Act 1994 making the Bars standard rated:
Confectionery, not including cakes or biscuits other than biscuits wholly or partly covered with chocolate or some product similar in taste and appearance.
When Morrisons sold the Bars it had accounted to HMRC for VAT at the standard rate being 20%. Now Morrisons sought repayment of around £1million of VAT on the Bars sold in a four year period from 2014.
The FTT agreed with HMRC the Bars were standard rated products. Morrisons appealed to the Upper Tribunal on the basis that the FTT had excluded analysis of the healthiness aspect of the Bars and the marketing of them as being healthy bars. In addition, the other ground of appeal was that the FTT had incorrectly treated the absence of cane sugar, butter and flour from the ingredients as irrelevant to the confectionery status of the Bars.
Healthiness Of The Bars Ground Of Appeal
A substantive issue floated was whether the healthiness of the Bars was relevant. The FTT said healthiness was not germane. It appears to have suggested a cake drenched in sugar, infused with cream and sumptuously chocolate coated would be zero rated whereas confectionery starved of sugar and fat would still be standard rated.
The Upper Tribunal reviewed the arguments from the case of Kalron Foods Ltd v Revenue & Customs [2007] EWHC 695 (Ch) and proceeded to slice up the arguments on the basis that far from being an irrelevant factor, healthiness was not a determinative one:
We conclude there is no reason in principle why healthiness was not a factor to be weighed up along with all the others in the balance when considering how the ordinary person on the street would view the product.
The Upper Tribunal considered that the FTT displayed an error of law on this point.
The Ingredient Ground Of Appeal
The issue here for consideration was whether an absence of cane sugar, butter and flour which will ordinarily be in confectionary was a relevant matter. The FTT relied upon the case of Revenue & Customs v Premier Foods Ltd. [2007] EWHC 3134 (Ch) (“Premier Foods”) to justify the absence of ingredients of sugar, flour and butter as irrelevant. The Upper Tribunal said the FTT wrongly did so because Premier Foods had not decided that fruit bar products were confectionery. In Premier Foods it was determined that neither cooking nor sugar was necessary for a product to be confectionery.
As a result, what the Upper Tribunal said about Premier Foods as fleshed out by the FTT was:
The High Court at [17] agreed with HMRC’s case that neither cooking nor added sugar were necessary for something to be confectionery. It concluded that the Tribunal had made errors of law and remitted the matter to a differently constituted Tribunal for a fresh assessment of whether the fruit bars were or were not confectionery (but there is no report of what that the new Tribunal ultimately decided). The FTT was therefore wrong to rely on Premier Foods as a basis for excluding the relevance of the point…We therefore find there was an error of law in the FTT rejecting the relevance of such ingredients. In agreeing with the appellant, that the FTT erred in law, it is important not to overstate the relevance of such traditional ingredients and to elevate their presence or absence into an essential characteristic. A consideration of whether something is confectionery will inevitably involve comparison with products which are present in items commonly accepted to be confectionery. There will no doubt be examples of confectionery which do not contain such ingredients but which are nevertheless confectionery. But that does not mean consideration of the ingredients, and the absence of traditional ones, will not add to the overall picture of the product’s classification.
The Upper Tribunal said these errors might have led to a different outcome and therefore set aside the FTT’s decision for the matter to be remitted back to the FTT given further findings of fact may need to be made.
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