Save content
Have you found this content useful? Use the button above to save it to your profile.
VAT on Nakd bars Morrisons supermarket | accountingweb
iStock_profeta_syrup

Healthy debate continues over VAT on snack bars

by

An appeal by Morrisons failed to hit the sweet spot so the VAT status of Organix and Nakd snack bars has now been remitted back to the first tier tribunal.

1st Feb 2023
Save content
Have you found this content useful? Use the button above to save it to your profile.

Following an earlier first tier tribunal (FTT) decision, the VAT status of Organix and Nakd snack bars has now been remitted back to the FTT by the upper tribunal (UT).

Morrisons the supermarket sold bars within the Organix and Nakd brands, totalling some 20 flavour variations. They originally charged VAT on all of these bars, but later decided they were in fact zero-rated as per Group 1 Schedule 8 of VATA 1994 and claimed a refund of just under £1.1m of VAT previously charged.

HMRC disagreed and the matter passed to the FTT, who found that all the bars were “confectionary” under Item 2 of Group 1.

Dissatisfied with this result, Morrisons requested and received permission to appeal to the UT.

Basis for appeal

Morrisons accepted the approach taken by the FTT and their underlying findings of fact.

They however believed that the FTT had erred in law by:

  1. failing to consider the actual and perceived healthiness of the products
  2. considering the lack of cane sugar, butter and flour to be irrelevant.

HMRC also advanced an additional argument in case the above factors led to a changed position. It believed that the FTT had wrongly rejected its argument that a “sweetened” product, as per Note 5 of Item 2, included one which was naturally sweet.

Already considered

HMRC submitted excepts from the FTT’s findings which it argued showed the healthiness of the product had in fact been considered. If so, this would have relegated the issue from an error of law to merely a disagreement over the weight of that one factor; the latter would not be grounds to appeal to the UT. 

The UT rejected HMRC’s submissions and found that while the FTT had mentioned the healthy nature of the bars, they had clearly not considered it as part of their decision process.

Healthy considerations

The FTT had presented the case of Kalron Foods Ltd, who had (unsuccessfully) argued that the intention of Group 1 was to make “junk foods” standard rated and “healthy foods” zero rated, to show why they did not consider the healthiness of the bars to be relevant.

Morrisons argued that the FTT had misapplied Kalron and should have considered the healthiness of the bars, as it had done for other non-conclusive factors such as packaging.

The UT ultimately found that just because Kalron had not found any direct link between the healthiness of a product and its VAT status, that did not mean that the factor should be ignored completely. The “multifactorial” evaluation carried out by the FTT was therefore incomplete.

Ground 1 therefore demonstrated an error of law.

Missing ingredients

Morrisons believed that the lack of cane sugar, flour and butter in the bars should have been taken into account. 

The FTT had relied on the Premier Foods Ltd case which had found that a lack of cane sugar had not prevented an item from being confectionary. However Premier had subsequently been remitted to a new tribunal for a fresh assessment and the UT could not find the outcome of this new hearing; the decision therefore could not be relied upon.

HMRC put forward examples of items agreed to be confectionary despite a lack of the stated ingredients and (rhetorically?) asked whether replacing cane sugar with artificial sweeteners would change the VAT status of various sweets. It therefore argued that the ingredients were not relevant and so did not need to be considered.

The UT disagreed, finding that, while not conclusive, the ingredients should have been considered as part of the multifactorial evaluation.

Ground 2 therefore also demonstrated an error of law.

Sweet enough?

Before concluding its decision, the UT had one final matter to consider. 

Note 5 to Item 2 states that confectionary is prepared food that is eaten with the fingers and is sweetened.

Morrisons agreed the bars met the first two conditions, but not the third, as no sweetness was added. HMRC instead argued that “inherent sweetness” was still “sweetened”. If HMRC was correct, all of the above would be moot and the bars would be confectionery.

However, the UT rejected HMRC’s argument, noting the lack of a strict definition of “sweetened” in Note 5 and that the use of the word “sweetened” not “sweet” implied added sweetness.

Decision and conclusion

The UT considered the errors of law sufficient such that they could affect the overall conclusion reached in conjunction with the other, already considered, factors.

It declined to re-make the decision and instead remitted it back to the FTT to reconsider, along with a list of directions.

While the UT declined to reverse the FTT’s decision, this is nevertheless good news for Morrisons (and other sellers of Nakd/Organix bars) who at the least have a stay of execution. 

I look forward to the next episode in this saga with bated breath!

Replies (7)

Please login or register to join the discussion.

By Duggimon
02nd Feb 2023 10:24

Trust HMRC to advance an argument that, for it to be right, would need to contradict not only the VAT law and case law but also the Oxford English Dictionary. "Sweetened" means "made sweet, or made sweeter", not something that is actually sweet.

Sugar is not sweetened, coffee with sugar is. It's a very simple definition to wrap your head around.

Please everyone now commence punning, I like to read them all to my gran, "o la la" she says to the best ones.

Thanks (1)
Replying to Duggimon:
avatar
By gillybean04
03rd Feb 2023 14:30

You can sweeten things without adding sugar itself though. I do it with cereal and baked goods. The fruit itself isn't sweetened, but my cereal/baking is because I add fruit which has natural sugar.

What about a coffee with artificial sweeteners? Has it been sweetened?

As an observation, what do nakd mean when they claim 100% natural ingredients? Sounds like marketing speak for "we want you to think this is healthy, please don't consider if sugar is natural or not" given the sugar content of their bars.

Thanks (1)
avatar
By paul.benny
02nd Feb 2023 10:45

If Morrisons prevail, they will have gained £1m from charging VAT to consumers that was subsequently found not to have been due. Does anyone believe they will rebate any of it the consumers?

Thanks (0)
Replying to paul.benny:
avatar
By PChapman
02nd Feb 2023 11:37

Have they reduced the selling price when selling as zero rated?

I doubt either!
In any case it would be impractical to try and refund the VAT to the consumers

Thanks (0)
Replying to paul.benny:
RLI
By lionofludesch
03rd Feb 2023 10:29

VAT is, for the most part, a tax on retailers, not consumers. Chocolate Nesquik is the same price as strawberry and banana. There was a lass a couple of weeks ago whinging about the price of feminine hygiene products not falling by an eighth, as she expected. The campaign to zero rate them will lead only to increased retailer profits.

There's no control over this stuff. Just market forces and, apparently, a cartel.

Thanks (0)
Replying to paul.benny:
avatar
By TB93
03rd Feb 2023 11:10

When they're charging 60p for a plastic bag, I don't think they're concerned about ensuring the customers retain their hard earned cash.

Thanks (0)
Replying to paul.benny:
RLI
By lionofludesch
03rd Feb 2023 12:42

paul.benny wrote:

If Morrisons prevail, they will have gained £1m from charging VAT to consumers that was subsequently found not to have been due. Does anyone believe they will rebate any of it the consumers?

Here's another campaign.....

https://www.change.org/p/tampon-tax-ended-where-are-the-price-cuts-dropt...

Thanks (0)