With Nestlé recently losing its appeal in relation to the VAT treatment of Nesquik fruit flavoured powders, it has got us thinking about the weird and wonderful subject of VAT and food.
Nestlé argued that as the flavoured powders are to encourage the drinking of milk, they should be zero-rated. The chocolate powder is already zero-rated but this has nothing to do with the fact that is linked to the drinking of milk; rather because it contains cocoa which is zero-rated as a food. The Upper Tier Tribunal examined the law but dismissed the appeal. Therefore, we have a situation where we have 3 similar products and two are subject to VAT but one is not.
So what other interesting rules are there?
Most people are aware of the Jaffa Cake situation (this even had a mention on Coronation Street many years ago). A Jaffa Cake is zero-rated but a chocolate digestive, which also has chocolate covering on the top, is standard rated. Why is this? Well a Jaffa Cake is, as the name would suggest, a cake which is zero-rated (regardless of how much chocolate is on the cake). A biscuit is only zero-rated if it is not partly or wholly covered in chocolate and as a chocolate digestive is partly covered in chocolate, it does not qualify for zero-rating. So how much chocolate is required to be partly covered in chocolate? It is accepted that a biscuit with only a few decorative dots (e.g. a gingerbread man) is not partly covered and therefore zero-rated and a chocolate chip cookie which could contain as much chocolate as a chocolate digestive is also zero rated because it isn’t covered in chocolate, just contains it. Additionally, if the biscuit is covered in caramel or some product not similar in taste and appearance to chocolate, it can qualify for zero-rating.
Snacks seem to be the main area of confusion and we discuss below the issues with crisps, nuts and other items for snacking. Crisps made mostly from potato are standard rated but crisps made from cereals can be zero-rated unless the cereals are ‘swollen’. For example, tortilla chips are zero-rated as they are made from corn and not swollen but monster munch which are also made of corn are standard rated because they are swollen. Vegetable crisps (which are neither potato or cereal) are zero-rated, as are Twiglets and Mini Cheddars. Salted or roasted nuts are standard rated but nuts in their shells are zero-rated. This in theory makes it quite straightforward (although pistachio nuts are salted even when they are in their shells) but there is the added complication that if these products are held out for sale for home baking then they can still be zero-rated. This point also applies to sweetened dried fruit which is standard rated when held out for snacking but if it is held out for sale for snacking and home baking, then it will be zero-rated.
Confused? Understandably so. The VAT liability of food items can be complicated and our VAT team has significant experience of reviewing product listings to determine the correct VAT rates which in numerous occasions has resulted in VAT reclaims. Our team has worked with supermarkets, pharmacies and coffee shops. With the latter it’s not just because of the cakes; it’s about the drinks too because if they sell a cold, milk based drink to be taken away these are zero-rated. If it doesn’t contain milk, is hot or doesn’t leave the premises then it is standard rated.
If you think you may need some assistance in determining whether you are charging the correct rate of VAT on the products you sell please get in touch with Alison Birch below.