HMRC has won the latest case about VAT on 'chocolate' biscuits as First Tier Tribunal rules that McVitie’s Blissfuls are liable for VAT
The case was brought by United Biscuits, the owner of McVitie’s, which argued that the new Blissfuls biscuit range should be zero rated for VAT as the chocolate was a filling, not a layer on the outside of the biscuit.
The issue at stake for the tribunal was a narrow one, essentially whether the product was partly covered with chocolate.
The first sales of the biscuits were made in January 2022 and the appellants appealed to the tribunal in February 2022 disputing HMRC’s VAT position.
To kick off proceedings, the tribunal described the biscuit in detail, stating that ‘it consisted 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 a McVitie’s logo made of biscuit on top’.
The decision centred on the interpretation of section 30 of Value Added Tax Act 1994 covering zero rating, and whether the supply was zero-rated. Section 30 includes a description of ‘excepted items’, including ‘confectionery, not including cakes or biscuits other than biscuits wholly or partly covered with chocolate or some product similar in taste and appearance’.
At the tribunal, Julian Ogden, director of global indirect tax at United Biscuits subsidiary Pladis Global, said the company had sought confirmation from HMRC in July 2021 that the product should be zero-rated. HMRC’s view was that the product should be standard rated for VAT.
As is typical with these food related VAT cases, much of the discussion focused on the specific composition of the biscuit, with Ogden providing detailed oral evidence about the biscuit lid, which he said was ‘not purely decorative but also served the function of keeping the structure of the product in place and provided a crunch element before the consumer tasted the chocolate flavour’.
HMRC argued that the appellant was trying to put a gloss on the words of the statute. ‘The test is not whether the biscuit is a “sandwich” type of biscuit nor whether the chocolate can be bitten into first,’ HMRC said. It went on to dispute the amount of chocolate at the top of the biscuit.
In HMRC’s opinion, ‘the top layer is part biscuit and part chocolate. The biscuit logo does not cover the whole of the biscuit, only part of it, which begs the question what covers the remaining area. The answer is chocolate. Even on the appellant’s own figures the product is not wholly covered by the biscuit logo’.
United Biscuits referred to HMRC guidance VAT Notice 701/14, which gives examples of products which are zero-rated, including chocolate chip cookies, bourbon biscuits and other biscuits where the chocolate forms a sandwich layer between two biscuit halves and is not continued onto the outer surface.
They argued that the ‘product is a sandwich biscuit comprising three layers: a biscuit base, chocolate cream filling in the middle and a biscuit lid as the top layer’.
The tribunal called on the Oxford English Dictionary for definitions to help with their decision making.
‘The question therefore, it seems to us, is what, if anything, covers the remaining area which is not covered by the biscuit logo,’ the tribunal said. ‘The Oxford English Dictionary defines ‘partly’ as ‘to some extent’ or ‘not completely’. ‘Covered’ is defined as ‘having a layer or amount of something on it’. We found this a useful starting point which appears consistent with the approach of the tribunal in North Cheshire Foods Ltd (1988).’
The tribunal was not convinced by the appellant’s argument about the covering being the first constituent part of the biscuit, stating that ‘this writes additional words into the legislation’.
‘We asked ourselves, if the biscuit logo does not cover the whole, what covers the remaining area? We consider that the view of the ordinary man in the street informed as we are, would conclude that the biscuit is partly covered by a layer of chocolate.
‘We therefore conclude that the product is brought within Excepted Item 2 by virtue of being partly covered with chocolate.’