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biscuit selection box | accountingweb | Crunch time for McVitie’s in biscuit VAT battle
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Crunch time for McVitie’s in biscuit VAT battle

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It was sweet success for HMRC in the case of McVitie’s Blissfuls, which centred on whether the biscuits are wholly or partly covered with chocolate.

24th Oct 2023
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The makers of McVitie’s biscuits have had another bite of the cherry Bakewell in the age-old saga of VAT applied to confectionery, this time failing to convince the first tier tribunal that their Blissful biscuits are filled, not covered, with chocolate.

So what are the buttery biscuit basics? VATA 1994 at section 30 provides that food is zero-rated, but with a number of exceptions. These are listed in s 8 Group 1 and include “confectionery, not including cakes or biscuits other than biscuits wholly or partly covered with chocolate or some product similar in taste and appearance”.

This, as any engaged student of tax or biscuit aficionado will know, worked in McVitie’s favour in the notorious case of the Jaffa Cake, which it successfully argued should be treated as a cake and thus zero-rated despite its glorious chocolate covering.

The Blissfuls case, United Biscuits (UK) Ltd vs HMRC (TC/2022/09475) centred around the same exception, but this time the focus was on whether the chocolate – or substance similar to chocolate – can be said to be partly covering or merely filling the biscuit. There was some discussion around the percentage of the biscuit covered by the biscuit topping, however this was a moot point as it is a matter of fact that the biscuit is not “wholly covered” by it.

There is no percentage below which “partly covered” does not apply to biscuits in this context, however if you asked a gingerbread person they might have a thing or two to say about this. 

Food for thought

mcvities blissfulsIf you’ve never had the pleasure of tasting a McVitie’s Blissful (left), pop the kettle on, then sit back and enjoy the FTT’s mouth-watering description: “The product consists of a biscuit cup with a flat bottom base, approximately 44mm in diameter and 9.5mm in height. It has a layer of chocolate hazelnut, a layer of chocolate and a McVitie’s logo made of biscuit on top, the circumference of which is smaller than the base.”

As the biscuit logo sits on top of the chocolate layer, the taxpayer argued that it is impossible to reach the chocolate without first crunching through the biscuit: “The covering must be first constituent part of a biscuit to be bitten into… because it is the topmost surface of the biscuit”. 

The chocolate layer the teeth sink into milliseconds after the initial satisfying crunch is therefore a filling, not part of the covering, claims the taxpayer. This interpretation would bring the Blissful into the same zero-rated category as other sandwich biscuits such as Bourbon creams where, as per VAT notice 70114, “the chocolate or similar forms a sandwich layer between two biscuit halves and is not continued onto the outer surface”.

Crumbelievable

HMRC’s question in response to this was if, as is not disputed by any party, the biscuit logo does not wholly cover the chocolate layer, then what is the remaining area covered by, if not the chocolate?

The FTT agreed with HMRC, noting that whether the cover of the biscuit is the first part bitten into is not the correct test to apply and considering such an argument “writes additional words into the legislation”. The judge added: “The legislation does not require one layer to be higher than another to be classed as covered”.

Referring to Ferrero UK Ltd (LON/94/1149), the FTT concluded that an “ordinary man in the street informed as we are, would conclude that the biscuit is partly covered by a layer of chocolate”.

The taxpayer’s appeal was dismissed and Blissfuls made subject to VAT at the standard rate by virtue of VATA 1994 s 8 Group 1 Excepted Item 2. Oh crumbs!

HMRC’s slam dunk

With puns wearing thinner than a Carr’s Table Water biscuit, all that’s left to say is that HMRC has come out on top this time, and unfortunately for United Biscuits, that’s just the way the cookie crumbles.

Replies (45)

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By Roland195
24th Oct 2023 13:23

Jesus wept, this again. A room full of highly educated, doubtless intelligent people each costing a small fortune to be there to settle such a crucial, life altering question of what is a biscuit?

After torturing legislation from half a century ago & the English language while they are at it, we conclude that this product although plainly not "chocolate covered" - seems to be a pie to me actually, is a biscuit but a Jaffa Cake which is actually covered in chocolate is not.

I suspect the only reason the legislation isn't updated with something more sensible is that everyone involved enjoys the test sampling of the products in question too much.

Thanks (14)
Replying to Roland195:
RLI
By lionofludesch
26th Oct 2023 12:26

Roland195 wrote:

Jesus wept, this again. A room full of highly educated, doubtless intelligent people each costing a small fortune to be there to settle such a crucial, life altering question of what is a biscuit?

After torturing legislation from half a century ago & the English language while they are at it, we conclude that this product although plainly not "chocolate covered" - seems to be a pie to me actually, is a biscuit but a Jaffa Cake which is actually covered in chocolate is not.

I suspect the only reason the legislation isn't updated with something more sensible is that everyone involved enjoys the test sampling of the products in question too much.

You're on the wrong track here.

Unlike the Jaffa Cake, which is clearly a cake (it says so on the box), this was always a biscuit. The question was whether it was chocolate covered, wholly or in part.

Thanks (1)
paddle steamer
By DJKL
24th Oct 2023 13:59

This is a sad day for biscuit eaters but in reality I do not expect it would be sold for less if the decision had gone the other way, they would have pocketed the price difference at retailer, wholesaler and manufacturer levels.

One of my earliest audits was at a company near Paisley that made the wrappers etc for UB, fantastic process to watch ,the enormous rolls of film/foil running through the machines , printed, then cut/sealed etc. (Why I like watching Inside the Factory, I always loved clients which made tangible objects)

I recall having to check some stock records in the paint store room and being terrified I would get vivid coloured paint on my dark blue pinstripe suit as there were splashes of it everywhere in the room(they mixed the colours). I also remember it as one of the few audits where the FD took the audit team out to lunch- West Coast hospitality clearly evident .

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Replying to DJKL:
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By mumpin
25th Oct 2023 12:29

I've never heard of West Coast hospitality.

But have personal experience of Weedgie abrasiveness and churlish behaviour.

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By Tom+Cross
24th Oct 2023 14:32

Oh, crumbs!

Thanks (1)
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By Yossarian
25th Oct 2023 08:19

Surely nowadays a biscuit could self-identity as a cake, and vice versa? Has anyone asked the biscuit how it feels about this?

Thanks (20)
Replying to Yossarian:
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By FD-HBC
25th Oct 2023 10:10

So the acronym really stands for Law Gets Biscuit To Question Identity Assignment ??????
I did not know that

Thanks (6)
Replying to FD-HBC:
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By Yossarian
26th Oct 2023 10:10

Sorry I can't answer that, I'm a 'TERF' or Tunnocks Eclair Richtea Figroll eater.

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Ivor Windybottom
By Ivor Windybottom
25th Oct 2023 09:29

The policy of using VAT to change consumer behaviour in food choices is no longer relevant. We can see that this does not impact the price for the consumer by 20%, so is a very blunt object. Surely it is now time to charge 20% on all food, or at least most food.

Targeted taxes like the "sugar tax" are likely more effective and can be applied at the manufacturer level, rather than consumer level, until the desired behaviour is embedded.

Thanks (3)
Replying to Ivor Windybottom:
7om
By Tom 7000
25th Oct 2023 10:05

Do you not think its fundamentally immoral to tax food

Thanks (9)
Replying to Tom 7000:
Ivor Windybottom
By Ivor Windybottom
25th Oct 2023 10:18

Well if it is then why do we add VAT to any food?

I don't like paying VAT on everyday basic essentials (e.g. clothes), but that doesn't mean to tax them is wrong.

Taxes allow the state to provide a safety net for those in poverty and while we can argue about how effectively this is operated, in principle taxes can be a moral way to provide support for those who need it and to provide shared services (e.g. schools).

You have a different view?

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Replying to Ivor Windybottom:
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By graydjames
25th Oct 2023 11:02

VAT is already a regressive tax; the burden on the poorest households, as a percentage of income, is significantly greater than those from more well-off households.

Adding VAT to staple foods will not help poverty. It will make it worse.

Thanks (11)
Replying to graydjames:
VAT
By Jason Croke
26th Oct 2023 16:14

graydjames wrote:

VAT is already a regressive tax; the burden on the poorest households, as a percentage of income, is significantly greater than those from more well-off households.

Adding VAT to staple foods will not help poverty. It will make it worse.


Not necessarily regressive, depends on which studies you read. Foods are zero rated as are children's clothing, books, train and coach tickets, education and healthcare/welfare is exempt, rent is exempt as well as service charges, utilities are reduced rated.

A person in poverty buying a basket of food whilst renting a flat and commuting by bus or train is no more taxed than a well off person in the same position.

Once we start to look beyond the myriad of exemptions and zero rates, like buying a car or booze or home decoration, then it starts to pinch the poorer more but even then a 2nd hand car will likely be not VATable, holidays probably under TOMS and not all builders are VAT registered.

Point is, VAT is less regressive when we look at all the things that don't actually have VAT on.

Zero rating food does not mean cheaper food for the consumer, just more profit margin for manufacturers. Be better to charge VAT on food and then increase benefits or other grants for those less fortunate, quite a lot of study into this concept and a lot going for it, despite it not seeming logical but better to tax all and target poverty better and more precisely.

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Replying to Jason Croke:
RLI
By lionofludesch
26th Oct 2023 16:25

Jason Croke wrote:
.....but even then a 2nd hand car will likely be not VATable, holidays probably under TOMS and not all builders are VAT registered.

Mmmm - are you sure there's no VAT cost, albeit irrecoverable, built into second hand cars, TOMS and unregistered builders ?

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Replying to Tom 7000:
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By Markcairns67
25th Oct 2023 10:23

Tom 7000 wrote:

Do you not think its fundamentally immoral to tax food

Not really no. At a stretch I would consider it poor form to tax staples like milk, bread, water, butter, meat, etc. but wouldn't mind that on the rest of the packaged/processed world of food.

Thanks (2)
Replying to Tom 7000:
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By rjmannaca
25th Oct 2023 10:32

My opinion is that certain food stuffs that are zero-rated, such as sweet biscuits, should be standard rated anyway but, that aside, imagine how much time and effort could be done away with if there was a standard, maybe lower, rate on non-alcoholic food and drink of all kinds.

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Replying to Tom 7000:
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By Open all hours
25th Oct 2023 12:18

No. There is VAT on other essentials. Tax everything - at a much lower rate to compensate - and everyone - no artificial £85K threshold - just a sales tax.

Thanks (3)
Replying to Open all hours:
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By simong16
25th Oct 2023 13:01

So in effect reduce the price for wealthier people and pass their gain on to poorer people by taxing items that are currently tax free? Presumably you would uprate the benefits system to compensate?

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Replying to simong16:
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By Open all hours
26th Oct 2023 12:02

Yes and no in that order.
Food spend by the bottom 20% income sector is under 15%.
Slight increase over 2020 but noticeably lower than for decades before that.

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Replying to Ivor Windybottom:
paddle steamer
By DJKL
25th Oct 2023 11:27

That will do wonders for inflation.

Thanks (2)
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By Kaylee100
25th Oct 2023 10:00

Personally I think the legislation needs changing.

If chocolate in solid form, even chips, comes anywhere near a cake or biscuit it's a luxury.

I also laugh at the ridiculous-ness of me reading this with alacrity, which is only to be outdone by the crazy room full of intelligent people arguing and deciding this case. Plenty of shared sniggers during the hearing, Im sure.

Thanks (5)
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By smill
25th Oct 2023 10:15

Please tell me you had a tax-deductible packet of Blissfuls to research this piece?

Thanks (3)
Replying to smill:
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By Amy Chin
25th Oct 2023 14:07

Haha sadly not!

Thanks (1)
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By vstrad
25th Oct 2023 10:27

If we get nothing else out of Brexit, can we not at least put a stop to this "Is it a bird, is it a plane?" nonsense?

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Replying to vstrad:
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By paul.benny
25th Oct 2023 10:40

Nothing to do with Brexit. Most EU member states apply a reduced rate of VAT to all foods. The UK got a derogation on joining the EEC to permit zero-rating and has always had the option to reduce the scope of zero-rating.

Thanks (4)
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By Marlinman
25th Oct 2023 10:38

What a load of nonsense and a complete waste of everyone's time. VAT is a joke and needs to be abolished.

Thanks (6)
Replying to Marlinman:
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By paul.benny
25th Oct 2023 10:44

And how would you propose to raise the c£200bn revenue generated from VAT?

Almost every developed nation barring USA has a form of VAT. It's *relatively* difficult to evade and for *most* businesses, reasonably straightforward to administer

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Replying to paul.benny:
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By Red1960
25th Oct 2023 11:02

Equitably.

In a sane and reasonable world I can't see any rational reason why VAT or NIC should exist considering that both can be replaced through progressive taxation.

It's called tax simplification and I thought we were all in favour of that.

Thanks (1)
Replying to Red1960:
paddle steamer
By DJKL
25th Oct 2023 11:29

Not sure it would simplify.

Vat is a tax that only impacts business entities re compliance rather than making the wider general public make returns etc, from that perspective it surely is simple.

Thanks (3)
Replying to Red1960:
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By GDavidson
25th Oct 2023 11:42

Long forgotten is the time when the blessed Margaret Thatcher raised VAT by 82% whilst simultaneously reducing income tax on the wealthy.

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Replying to paul.benny:
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By PChapman
25th Oct 2023 11:29

Actually USA do have Sales Taxes, State and Federal.

I agree VAT should not be charged on staple items as it unfairly increases the relative burden on those with the lowest income.

The Biscuit v's Cake issue with VAT is and always was bizarre!
A cake completely covered in Chocolate is a staple food therefore zero rated
whereas you do the same to a biscuit and it is a luxury!

As for the comment that the consumer would not see the 20% saving for items de-rated you would absolutely see the additional cost of having 20% VAT added to your weekly food shop! (instantly, with the excuse that is is the government's doing!)

Thanks (1)
Replying to PChapman:
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By paul.benny
25th Oct 2023 11:52

peter-AT-pschapman.plus.com wrote:

Actually USA do have Sales Taxes, State and Federal.

US sales taxes are not the same as a value-added tax - it is just a tax on the end consumer with no concept of input tax and output tax. B2B sales of certain goods and services can usually be exempted if the seller holds a valid exemption certificate provided by the buyer.

Thanks (0)
Replying to Marlinman:
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By Markcairns67
25th Oct 2023 11:02

Marlinman wrote:

What a load of nonsense and a complete waste of everyone's time. VAT is a joke and needs to be abolished.

It's all well and good to call for abolishing Tax X or Tax Y. Motherhood and apple pie, who wouldn't love lower taxes with no trade-off!

I would like SDLT to be abolished for buying a house to live in because it only raises a relatively piddly amount of tax and I'd expect the economic benefits (significantly more mobility both for working and retired people) to far outweigh the cost. Can that be said of VAT, I don't know.

Given our rapidly burgeoning state pension and eldercare health expenditure, unless you are happy with borrowing more (at 25 year high gilt rates) to plug the gap, what do you propose as a revenue raiser to replace VAT income?

Thanks (1)
Replying to Marlinman:
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By Open all hours
25th Oct 2023 12:23

100% agree with you. My experience is that the increased use of software has led to many more erroneous input VAT claims.

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By listerramjet
25th Oct 2023 13:06

The tribunal is clearly wrong. In the sense that a string vest is clearly a “covering” even accepting the gaps. As a straight forward question of fact a woolly jumper also has gaps, even if in some cases the human eye cannot discern them. Although the more important point is why on Earth does HMRC think it important to pursue cases like this, using our money. They should be locked up!

Thanks (4)
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By TB93
25th Oct 2023 13:34

"ordinary man in the street informed as we are, would conclude that the biscuit is partly covered by a layer of chocolate"... I would like to see this put to the test.

Looking at the biscuit, there isn't any outer layer of the biscuit covered in chocolate, I seriously doubt any man in the street would say the biscuit is partly covered.

Thanks (8)
Replying to TB93:
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By Kaylee100
25th Oct 2023 14:26

Oh no, don't you start lol

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By a_q
25th Oct 2023 15:31

Who said accountants didn't have a sense of humour?

As a computer contractor, I look forward to claiming input tax on my next packet of Blissfuls, bought by the Lrd Co.

P.S. I actually invented plain chocolate gingernuts, but, that's another story....

Now - receive updates to this... hmmm, "Weekly Digest", I think?

Thanks (1)
Replying to a_q:
Ivor Windybottom
By Ivor Windybottom
26th Oct 2023 12:50

Oh, my favourite thing is dunking a ginger in boiling water!

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By a_q
25th Oct 2023 15:31

Who said accountants didn't have a sense of humour?

As a computer contractor, I look forward to claiming input tax on my next packet of Blissfuls, bought by the Lrd Co.

P.S. I actually invented plain chocolate gingernuts, but, that's another story....

Now - receive updates to this... hmmm, "Weekly Digest", I think?

Thanks (0)
By Husbandofstinky
25th Oct 2023 17:05

Sorry, not the sort of read you want went on a diet.

BMI of just over 25, but that's the only way to keep it like that - the eternal diet!

Back to the article, as usual lots of money being thrown about on subjective technicalities. The good old minefield known as VAT. Surely it doesn't have to be this way?

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By Mallock
25th Oct 2023 17:58

The Tribunal quite clearly got this wrong. There is no way that biscuit is covered in chocolate. However since the Government/HMRC got rid of the Office for Tax Simplification, I think they must have some strange sadistic streak that wants to make everyone's life more difficult. Just put VAT on all biscuits - doesn't bother me because my clients bring a regular supply of biscuits and chocolates to the office anyway!

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Replying to Mallock:
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By TB93
26th Oct 2023 13:39

It's chocolate, covered in biscuit. Case closed.

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Replying to TB93:
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By Mallock
26th Oct 2023 15:42

Is it a biscuit - yes. If it looks like a biscuit and crunches like a biscuit, chances are, it's a biscuit.

Definition of covered is: "put something on top of or in front of (something), especially in order to protect or conceal it."

Is it covered or partly covered in chocolate -no, which should mean no VAT.

Is it a chocolate covered in biscuit - never had one so couldn't comment.

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By More unearned luck
26th Oct 2023 17:15

I've not seen a blissful in the wild, but it was common ground that the chocolate was a filling (par 3 iii)). So I'm mystified how the chocolate could at the same time be a (partial) covering. Words like 'filling' and 'covering' are used in their everyday sense not in some legal sense. If you were asked to describe one of these biscuits would you say that the chocolate element was a covering?

I think that UB shouldn't have conceded "that the product is not wholly covered in chocolate" as that could imply that they accept that it is partly covered in chocolate when the case was that it was not even partly covered in chocolate.

The solution for UB is to change the order of the filling putting chocolate on the bottom and the hazelnut layer with no chocolate or chocolate emblement.

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