Crunch time for McVitie’s in biscuit VAT battleby
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.
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
If 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”.
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.
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Consulting Tax Editor for AccountingWEB.
I have spent the last 10 years teaching the accountants of the future, mainly ICAEW advanced level corporate reporting. I also cover tax news and write and edit tax updates for other publishers including PTP Limited.