Associate Director RSM
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VAT: Are healthy brownies cake or confectionery?

24th Jan 2019
Associate Director RSM
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Brownies
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David McKinlay considers the ever-confusing world of VAT and cakes following the case concerning a healthy brownie produced by Pulsin’ Ltd (TC06909).

Almost 30 years after the infamous Jaffa Cake VAT case (is it a cake or a chocolate biscuit?) a new cake question for the 21st century has arisen on whether a brownie is a cake or confectionery.

Food rules recap

There are complicated rules on the VAT treatment of food. VAT law states that “food of the kind used for human consumption” is zero-rated. However, there are exceptions to this rule including “confectionery, not including cakes or biscuits other than biscuits wholly or partly covered with chocolate or some products similar in taste or appearance” which are standard-rated.

To make it even more confusing, there are also exclusions and overriding items to the exceptions (ie items that requalify as zero-rated) or exceptions to the exceptions if you like.

All this means a chocolate cake is zero-rated whereas a chocolate biscuit (a so-called luxury item) is standard rated. In the Jaffa cake case, it was found that a Jaffa cake is a zero-rated cake rather than a standard rated chocolate biscuit.

Healthy brownie

In the case of Pulsin’ Ltd a similar question was asked as to whether a ‘healthy brownie’ should be classed as a zero-rated cake or as standard-rated confectionery.

Pulsin’ Ltd was successful in its arguments, and the FTT agreed its healthy brownie products (Raw Choc Brownies) showed enough characteristics of a cake to be classified as such and zero-rated for VAT purposes. This should allow Pulsin’ Limited to reclaim over £300,000 of VAT back from HMRC.

Place on a plate

The FTT applied the same tests used in Lees/Tunnock ‘snowballs’ VAT case (the chocolate covered mallow variety as opposed to the cold ones commonly thrown at this type of year) and the FTT focused on the manner in which the brownies were consumed. In the snowball case the manner in which the snowballs were eaten was one of the decisive factors. It stated “a snowball…is not out of place on a plate of cakes” and thus has the characteristics of a cake.

The FTT asked whether a brownie was out of place on a plate of cakes. The FTT’s comments were slightly different but had the same effect. It stated “…put alongside a slice of traditional Victoria sponge, a French Fancie and a vanilla slice or chocolate éclair the Products may look out of place. However, put alongside a plate of brownies, or, for instance, at a cricket or sporting tea where it is more likely that bought and individually wrapped cakes will be served on a plate the Products would absolutely not stand out as unusual”.

I am not sure how often readers have a brownie at a ‘sporting tea’ but it does not appear to be a reference that would immediately spring to mind to the man on the Clapham omnibus.

Presentation for sale

The FTT also considered how the brownie was held out for sale and considered comments made by the public in the reviews left on Amazon and Ocado, to see if the brownie was perceived to have the characteristics of a cake.

The result of these tests, together with the findings from another eight tests, allowed Judge Amanda Brown to rule that this brownie was indeed a cake and should be zero-rated.

Food glorious food

Deciding on whether VAT should be charged on a new food product is not as straightforward as you would think. This won’t be the last VAT case to question whether a food item is a cake or confectionery, as long as there are no changes to the current VAT law.

Bear in mind the VAT law was initially drafted in 1972 when tastes and attitudes to eating were decidedly different. Indeed, the FTT states in its view “the current state of law on the taxation of food items is not fit for purpose” and it “fundamentally disagrees with HMRC’s guidance that the borderline between a cake and confectionery presents few problems”. It went on to question whether cakes should be taxed more favourably in light of the recent sugar tax on drinks.

It is unlikely that this case will make HMRC stop and consider the current VAT law and guidance regarding cakes and confectionery. However, it is possibly an issue we should now be examining.

Replies (7)

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By moneymanager
25th Jan 2019 10:39

Please don't tell HMRC that Jaffa Cakes are always on the biscuit shelf.

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By Roland195
25th Jan 2019 13:09

We I am sure we can all sleep soundly in our beds, safe in the knowledge that HMRC will tirelessly pursue any rascal that dares to threaten the Exchequer by incorrectly labelling a snack. Hanging is too good for them.

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Replying to Roland195:
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By Open all hours
26th Jan 2019 15:54

Not sure where you’re from Roland, but here in Yorkshire ‘Rascals’ are always cakes. The Fat ones from Bettys are exceptional.

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By unclejoe
25th Jan 2019 15:01

This may seem like a silly post, but I am interested in comments. I believe the principle of VAT is that it is tax on the person supplied which is collected and passed over by the supplier on behalf of HMRC. The VAT chain only stops when the goods reach a non-VAT registered customer. If Pulsin is a manufacturer, and he gets £300k VAT back he really ought to pay it back to his retailer customers. And they should pay it back to punters like me who have bought a packet of brownies in the supermarket. Not really very practical. So why should Pulsin get anything back at all - it basically represents a windfall. And armed with knowledge of this result, if I had bought a packet of brownies from Tesco last month for £1.20 could I go back to Tesco and demand my 20p excess VAT payment back. And Tesco would have a claim on Pulsin, I assume.

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Replying to unclejoe:
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By Roland195
26th Jan 2019 16:48

When M & S won their case over chocolate teacakes, anyone presenting a receipt showing a standard rate charge could claim their refund - how many people do you suppose did so? Unjust enrichment

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By AndrewV12
28th Jan 2019 12:40

A good time to re-advise us of the rules;-

VAT law states that “food of the kind used for human consumption” is zero-rated.

As opposed as food of the kind not used for human consumption - (walk down your high street to see examples).

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By mgbacchus
28th Jan 2019 19:49

Leave the item out in the open in a dampish atmosphere. If it goes soggy, it is (or was) a biscuit. If it goes hard, it is (or was) a cake. Easy. Don't need tribunals.

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