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VAT on Cocoa products

Cocoa products are zero rated as per VAT notices but if selling in sachet packs still zero rated?

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Hi

As per VAT Notice 701/14 & VFOOD7720 it seems Products like  "Hot Chocolate Cocoa Mix, Mini Marshmallows/Rich Milk Chocolate Flavour Sachets" should be zero-rated sales. Please advise if I am missing any point.

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Jason Croke
By Jason Croke
26th Jul 2021 13:18

The zero rate is not driven by whether the product is sold in tins or sachets. Is it the mini marshmallows that are concerning you or the fact the product is sold in sachets?

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Replying to Jason Croke:
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By ayaz786ahmd
26th Jul 2021 13:21

ok so what should be the treatment of the product?

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Jason Croke
By Jason Croke
26th Jul 2021 14:52

I thought in your original question you asked "Cocoa products are zero rated as per VAT notices but if selling in sachet packs still zero rated?" so you already concluded the products are zero rated but you were unsure as to same product in sachet form.

My reply was that it didn't matter if the product was sold in tins or sachets.

Now you are asking what the VAT treatment of the product is?

Its not that easy (and dangerous) to just say its zero rated. What exactly is the product? Is it just hot chocolate in a sachet?, are there marshmallows/something else?, if yes are the marshmallows/something else in the sachet with the cocoa or a separate sachet, can the marshmallows/something else be purchased on their own, are these being held out for sale as sachets or as a kit or both or something else? Are we selling takeaway hot drinks or just the dry coca in sachets/bags, etc
(I noted you've posted previously re. a catering business registering late for VAT).

I would recommend submitting a non-statutory clearance to HMRC and send them a sample of the product and HMRC will confirm what the VAT status is, depends on whether this product is a small or large amount of sales for the business, the larger the sales of the product, the greater the risk of being wrong and a confirmation from HMRC removes that risk.

Not trying to be difficult, just foodstuffs and zero rate can hang on the precise facts.

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Replying to Jason Croke:
RLI
By lionofludesch
26th Jul 2021 15:09

"...or just the dry coca in sachets/bags, etc"

I very much hope that that's a typo.

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Replying to lionofludesch:
Jason Croke
By Jason Croke
26th Jul 2021 16:13

Typo, I think...

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Replying to Jason Croke:
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By ayaz786ahmd
27th Jul 2021 09:12

i have mentioned the name of the product in my post. Sorry if it was still not clear. Thanks for the details. This is the product: https://www.amazon.co.uk/dp/B08X2SW9ZL/ref=cm_sw_r_cp_api_glt_fabc_AH77X...

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Replying to ayaz786ahmd:
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By paul.benny
27th Jul 2021 10:56

Based on the ingredients listed on the amazon page (the first two of which are sugar), I don't believe this qualifies for zero-rating.

Group 1 of Schedule 8 the VAT Act, makes food zero-rated except for beverages, with an override to that exception for tea and coffee.

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Replying to paul.benny:
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By The Dullard
27th Jul 2021 12:30

paul.benny wrote:

Group 1 of Schedule 8 the VAT Act, makes food zero-rated except for beverages, with an override to that exception for tea and coffee.

The overrides to the exceptions actually include:

- 4 - Tea, mateg, herbal teas and similar products, and preparations and extracts thereof, and

- 5 - Cocoa, coffee and chicory and other roasted coffee substitutes, and preparations and extracts thereof.

Sweetened hot chocolate with little marshmallows in is still a preparation of cocoa, in my opinion.

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Replying to The Dullard:
Jason Croke
By Jason Croke
27th Jul 2021 12:35

VFOOD7720 - Excepted items: beverages: coffee and cocoa products
Item 5 of the items overriding the exceptions applies the zero rate to cocoa, coffee, chicory and other roasted coffee substitutes and preparations and extracts from them. Zero-rating therefore extends to coffee beans, instant coffee, drinking chocolate and cocoa, chicory, and dandelion root (coffee substitutes).

The fact that preparations and extracts of coffee and cocoa are specifically zero-rated under this provision means that some products whose status would otherwise be doubtful can qualify for zero-rating if they are made from coffee or cocoa, for instance powders for flavouring milk-shakes, and coffee or cocoa based beverages, including those made from soya milk or having too low a proportion of dairy milk to be regarded as zero-rated preparations of milk.
https://www.gov.uk/hmrc-internal-manuals/vat-food/vfood7720

So preparations of cocoa based products are zero rated, so I agree with The Dullard.

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Replying to Jason Croke:
RLI
By lionofludesch
27th Jul 2021 12:43

There's no escaping reading the whole thing on the food group, including the exceptions to the overrides to the exceptions.

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Replying to The Dullard:
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By paul.benny
27th Jul 2021 14:17

You're right and I should have quoted the full override.

Whilst there's no detailed definition or de minimis in the Act, there is little actual cocoa in the product, hence the label refers to it as 'chocolate flavor'. I think this disqualifies it from the override.

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Replying to paul.benny:
Jason Croke
By Jason Croke
27th Jul 2021 17:59

My earlier post suggested the best route would be to write to HMRC and obtain a non-stat clearance, because as I alluded to in my post, zero rating on food can be very tricky and if a business is going to sell £100k of this product and base the zero rating on some free advice off a forum then the risk is immense.

As you state, there is no de minimis or threshold as to when something is or isn't cocoa, the guidance just refers to cocoa based preparations. The packaging indicated that the product contained "real Nestle cocoa" so that may be enough, but as we know, HMRC like to pick fights and move the goalposts.

One question to ask though. Unless the OP is representing Nestle, then I presume they have purchased these products wholesale and so what was the VAT treatment by the wholesaler/supplier? I ask because the product is not being changed and so the VAT treatment by the wholesaler would be the same for retail (assuming the wholesaler has got it right of course!)

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RLI
By lionofludesch
26th Jul 2021 15:10

It does annoy me that Tesco charge £3.29 for chocolate Nesquik and the same £3.29 for strawberry and banana.

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Replying to lionofludesch:
Jason Croke
By Jason Croke
26th Jul 2021 16:16

Annoys me too. Same issue with vegetable crisps, zero rated but same price as standard rated potato crisps.

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