First Tier Tribunal DuelFuel filed an appeal against HMRC’s decision with the First Tier Tribunal. Even though the Tribunal referred to the independent lab tests and stated that the products ‘tended to dry out when exposed to air’ this did not affect the final judgement. At the Tribunal, it was first considered if the products were cakes according to VAT legislation. As there is no statutory definition of cake, the Tribunal adopted a multi-factored test to do this. This included looking at the nature and description of the products, ingredients used, manufacturing process, size, appearance, taste, texture packaging, marketing and in what circumstances they would be consumed. The Tribunal concluded that even though the products looked like cakes, the ingredients used in making them, the taste, and the packaging, marketing and pattern of consumption were such that an ordinary person would not consider them cakes.
It will be interesting to see how the widening of the definition of confectionery will impact on other similar products being manufactured and the increasing difficulty taxpayers will face in trying to obtain zero rating. If you would like to speak to our team about a VAT matter, please contact hello@scruttonbland.co.uk or call 0330 058 6559.
The taxpayer then argued that if they were not cakes, they could not be considered confectionery either. Under the legislation, confectionery is defined as “not including cakes or biscuits other than biscuits wholly or partly covered with chocolate or some other product similar in taste and appearance” and a further Note 5 in the legislation states that “confectionery includes chocolates, sweets and biscuits; drained, glace or crystallised fruits; and any item of sweetened prepared food which is normally eaten with the fingers”. The Tribunal stated that as the products were an ‘item of sweetened prepared food which is normally eaten with the fingers” this was sufficient to classify them as confectionery, but the taxpayer disputed this stating that despite this, the products must be “similar to the other items in Note 5 such as chocolates and sweets”. The Tribunal therefore relied on another case at the Upper Tribunal (WM Morrison Supermarkets) where it stated Note 5 “deems products with certain attributes … to fall within the confectionery exception” and that the wording in Note 5 “was intended to extend the definition of confectionery beyond its natural meaning”. The products were therefore deemed to be confectionery using this wider definition in Note 5 and therefore standard rated.
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