VAT In Manufacturing VAT can be a complex area and there have been a plethora of diverse cases we have seen been debated in the manufacturing sector. Paula Mason, VAT Manager, highlights some of these in her update below.
EU VAT Reclaim Opportunities Manufacturers typically suffer VAT in connection with their business activities both in the UK and in EU Member States. Obviously, VAT suffered in the UK can be reclaimed in the UK VAT return, but how can VAT suffered in the EU be reclaimed when the business is only required to be registered for VAT in the UK? The answer lies in the EU Thirteenth Directive. This allows businesses to recover EU VAT suffered on expenses such as accommodation, food and drink, marketing, transportation, and various other expenses relating to the manufacturing process where the place of supply for VAT purposes is where the supplier is located. Claims must be made directly to the tax authority for each Member State, and each have their own eligibility rules, as well as differences in dates to submit claims by and minimum amounts. Therefore, it can be quite a complex area for manufacturers submitting multiple Member State claims and professional assistance is usually a must. However, submitting claims is definitely worth considering if the VAT being suffered in the various Member States is significant.
Background to the Case The product in this case was a two-in-one solution marketed to sports enthusiasts and consisted of a flapjack and either a cake or a brownie which was packaged together. The flapjack provided carbohydrates for energy prior to exercising and the cake or brownie provided protein after exercise to rebuild muscle. The taxpayer heavily researched the VAT treatment of the products and was confident that they should be treated as cakes and therefore zero rated but, to gain certainty, they wrote to HMRC in October 2021 asking for clearance. HMRC disagreed, stating that the products were confectionery and therefore subject to VAT at 20%. In their opinion, the products ‘did not dry out like a cake would’. In the famous Jaffa Cake case, it was this fact that went in the taxpayer’s favour; a Jaffa Cake was held to be a cake and not a chocolate covered biscuit. Despite appealing directly to HMRC and stating that according to independent lab tests the products did dry out, HMRC upheld their decision.
Where businesses are established in the EU but have suffered VAT in other Member States where they are not required to be registered, the EU Eighth Directive allows VAT to be claimed back from other Member States using a standardised procedure. Recent Case Law - “Taking the Biscuit” Most VAT case law in the Manufacturing sector appears to relate to food and whether the product being manufactured should be zero rated or standard rated. The VAT rules are extremely complex and if not assessed correctly, can be both reputationally and financially damaging to the business concerned. One recent case, DuelFuel Nutrition Ltd v HMRC, has resulted in the taxpayer having no option but to sadly close their business.
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