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VAT: When bread is cake

In the UK a cake is a cake for VAT unless it’s a biscuit, or confectionery - but an Irish VAT case has recently found that Subway bread actually qualifies as cake. Julia Garbutt tastes the difference.

15th Oct 2020
Grant Thornton UK LLP
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Subway sandwich shop located in Dublin, Ireland.
istock_subwaysign_doram
Subway sandwich shop located in Dublin, Ireland.

As always with these types of cases, when the news was announced of the recent decision that Subway rolls are not technically bread, it was met with much interest, humour and discussion about past cases. As the decision also made the national news, I’m sure many people thought that VAT law is barmy, perhaps also remembering previous headlines about the pasty tax or that chocolate coated orange sponge treat (of which I am probably the only VATie who enjoys).

What is not cake

Irish and UK VAT laws have many similarities, but also some quirky differences. In the UK, a cake is a cake unless it’s not a cake – in which case it might be confectionery or a biscuit. In Ireland, a cake is a cake too, but bread could be classified as a cake if it has sufficient quantities of sugar. It’s complicated and confusing, and the distinctions appear increasingly arbitrary.

During various discussions on the subject of Subway sarnies, a colleague and I were contemplating the last time we had a meatball marinara sub - I realised I was actually eating meatballs in a cake. What is a vegan meatball, I wondered? Or a vegan brownie?

A vegan what?

A vegan diet means no animal products and no eggs, so the staple of many a bake is out. Manufacturers look to other ingredients to produce appetising snacks and treats, which look and feel like the traditional food our grandparents may have baked.

Vegan brownies were the subject in Pulsin Ltd v HMRC (TC06909) where the court considered if these brownies were zero-rated cakes even though they are not made from typical cake ingredients.

As well as being vegan, the brownies are free from gluten, dairy, soya and refined sugars. That means a whole host of ingredients in my baking cupboard would not make it into the mixing bowl - the butter, sugar, eggs and flour. Instead, the Pulsin brownies contain raw chocolate, dates, and brown rice bran. In the Judge’s opinion these delicacies would “absolutely not look out of place” at “a cricket or sporting tea”.

Packaged in a similar way to a cake bar, they would seem to feel at home alongside similar products on a supermarket shelf or in a home packed lunchbox.

Chocolate balls

What about other vegan treats such as vegan truffles in Corte Diletto UK Ltd  v HMRC (TC07570)?

These Nouri Truffles are stated as being all natural, sugar- and gluten-free, and suitable for vegans - no sugar, no flour, no eggs, and no butter. Vegan truffles are made from chopped dates and nuts, mixed together with other ingredients used to give additional flavouring such as green tea or chocolate and hazel nuts.

In this case the court found that the truffles were confectionery and so standard rated. But why not cakes? The vegan truffles do not contain the stereotypical cake ingredients, similarly to the vegan brownies. So what was the difference that the court detected?

Unlike the brownies, these vegan truffles are packaged in a similar way to high end luxury chocolates and the Judge likened them to caramel truffles made by Thornton’s chocolatiers. The court’s decision seems to be based on where you might find them in the supermarket and how and when you might choose to eat them and not what they are made from.

Conclusion

VAT on food products often gives rise to surprising results. It may depend on the ingredients used to make the food or the amounts of each ingredient, as in the Irish Subway case. It can also be due to packaging, marketing, how it is held out for sale, and whether the man-on-the-street would serve them to you with afternoon tea or a liquor after dinner.

With the increase in non-traditional ingredient-based products, one thing is for certain - we shall continue to delight in the new foods we find on our supermarkets shelves and, for us VATies, the arguments over their VAT treatment.

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