The tribunal deliberated on whether bicarbonate of soda was a standard rated chemical or a zero-rated baking ingredient. The court rose to the occasion and decided it was food.
From a VAT perspective: what is the difference between culinary salt and bicarbonate of soda, both of which sit on our supermarket shelves and are used as important components in our food?
For those readers lacking the cookery skills of Jamie Oliver or Delia Smith, bicarbonate of soda is “a versatile raising agent for soda bread, cookies and gingerbread.”
The answer is that HMRC has always accepted that salt is zero-rated as “a food of a kind used for human consumption”, as it has with baking powder and flour, (VATA1994, Sch 8, Group 1, Item 1).
But HMRC regards bicarbonate of soda as “a chemical that can be used as a food additive” rather than a food in itself. This definition of bicarbonate of soda was given by a food technology consultant acting for HMRC in the case of Phoenix Foods Ltd (TC06296). On the basis that the product is an additive and not a food, it is subject to VAT at 20%.
Sifting the evidence
HMRC raised an assessment against Phoenix Foods Ltd for £291,526 plus interest in relation to the period: January 2012 to June 2014, which the taxpayer appealed.
A lot of the court time was taken up by reviewing the evidence from the expert food witnesses (one acting for HMRC and one for the taxpayer), but the judge shrewdly observed that it was for the tribunal to decide the VAT position and not the experts.
HMRC emphasised the fact that bicarbonate of soda could also be used as a cleaning product and was held out for stores in this way in for example Wilko hardware stores. But the reality was that it was also clearly packaged and marketed on the food shelves of other stores as a baking ingredient in supermarkets such as Lidl and Tesco.
Proving the case
VAT Notice 701/14 and HMRC’s VAT food manual (VFOOD2600) both list bicarbonate soda as a standard rated product. But as we well know, those documents only express HMRC’s interpretation of the legislation and do not have the force of law. It does seem strange that HMRC accepts that flour, baking powder and salt are zero-rated, but not bicarbonate of soda, and this must have influenced the judge’s thinking. The decision went in favour of the taxpayer and to quote from the report:
“A typical customer of the retailer purchasing that product could have had little doubt that he or she was purchasing an ingredient for home baking and the same would be true of the supermarket purchasing the product from the appellant…To our minds, the difference in the VAT treatment of salt sold for culinary purposes and bicarbonate of soda sold for culinary purposes is difficult to justify.”
I have always said that if ever planet earth was invaded by martians then our best line of defence would be to show them the VAT legislation on food, with all of its zero-rated items, exceptions to these items, exceptions to the exceptions and then exceptions to the exceptions to the exceptions.
They would instantly dismiss the human race as insane and happily return to their own planet at the first opportunity. How can we still be debating the VAT liability of food products when our favourite tax is only two months away from celebrating its 45th birthday?
Taking the biscuit
The learning point from this case is that VAT and food always needs very careful care to ensure there are no hidden skeletons lurking in the cupboard (or baking tin).
Are your catering and food retailer clients getting the VAT liability right on their invoices and in their tills, and also recognising the confusion that often exists between take-away and in-house sales?
The important point has also arisen that HMRC’s interpretation of the legislation is not always correct and the courts often disagree with their thoughts. Which reminds me…is a Jaffa Cake a cake or a biscuit?
About Neil Warren
Neil Warren is an independent VAT consultant and author who worked for Customs and Excise for 14 years until 1997.