In DuelFuel Nutrition Ltd v HMRC [2024] UKFTT 104 (TC) (2 February), the FTT held that a flapjack and cake bar sold together as a sports nutrition package were excluded from the VAT zero-rating for food.
The product in dispute was comprised of a flapjack and either a cake or brownie, packaged together and marketed for sports nutrition. It was designed to provide carbohydrates before exercise for energy (via the flapjack) and protein afterwards to rebuild muscle (via the cake or brownie). It also contained vitamins and minerals.
The zero-rate for food (VATA 1994 Sch 8 Group 1) contains several specific exclusions. One of these exclusions is ‘confectionery, not including cakes or biscuits other than biscuits wholly or partly covered with chocolate or some product similar in taste and appearance’. The appellant argued that the flapjacks, cake slices and brownies were all cakes and therefore did not fall within this exclusion. Failing this, the appellant contended that the products were not, in any case, confectionery and were therefore still zero-rated. HMRC argued that the products were confectionery and consequently standard-rated.
The FTT first considered whether the products were cakes within the meaning of the VAT legislation. Given the absence of a statutory definition of cake, the FTT employed a multifactorial test. This approach was informed by previous case law including Procter & Gamble [2009] EWCA Civ 407 and more recently The Core (Swindon) Ltd [2020] UKUT 301 (TCC). Factors examined included: the nature and description of the products; the ingredients; the manufacturing process; the size and appearance; the taste and texture; the packaging; the marketing; and the circumstances of consumption.
Whilst the products looked and had the appearance of cakes, the FTT concluded that the ingredients, taste, packaging, marketing and pattern of consumption of the products were all such that an ordinary person would not consider them cakes.
Having lost the argument on cakes, the taxpayer’s recourse was to argue that the products were not to be regarded as confectionery. A legislative note (VATA 1994 Sch 8 Group 1 Note 5) provides that confectionery ‘includes chocolates, sweets and biscuits; drained, glace or crystallised fruits; and any item of sweetened prepared food which is normally eaten with the fingers’. After some discussion of the correct interpretation of this note, the FTT concluded that its effect was to expand confectionery beyond its normal definition to include those items specifically included in the definition. Consequently, the products were to be regarded as confectionery and were excluded from the zero-rate.
For completeness (although strictly unnecessary), the FTT carried out another multifactorial test and concluded that an ordinary person would find that the products were not confectionery. Unfortunately for the taxpayer, given the conclusion on the legislative note, this further conclusion was academic and did not mean the product could be zero-rated.
Why it matters: This is yet another case that demonstrates the tension between unchanging VAT rules and a constantly evolving food landscape. From a technical perspective, the interpretation of the effect of the legislative note (Sch 8 Group 1 Note 5) as expanding the ordinary meaning of confectionery is interesting and of potential relevance to a range of food products. Practically, the case demonstrates the difficulties that taxpayers will have in achieving zero-rating for this increasingly popular kind of sports nutrition snack even where a product resembles a traditional cake or flapjack. The confusion is perhaps not assisted by HMRC’s longstanding policy to zero-rate ‘traditional’ flapjacks despite probable technical deficiencies in that position.
In DuelFuel Nutrition Ltd v HMRC [2024] UKFTT 104 (TC) (2 February), the FTT held that a flapjack and cake bar sold together as a sports nutrition package were excluded from the VAT zero-rating for food.
The product in dispute was comprised of a flapjack and either a cake or brownie, packaged together and marketed for sports nutrition. It was designed to provide carbohydrates before exercise for energy (via the flapjack) and protein afterwards to rebuild muscle (via the cake or brownie). It also contained vitamins and minerals.
The zero-rate for food (VATA 1994 Sch 8 Group 1) contains several specific exclusions. One of these exclusions is ‘confectionery, not including cakes or biscuits other than biscuits wholly or partly covered with chocolate or some product similar in taste and appearance’. The appellant argued that the flapjacks, cake slices and brownies were all cakes and therefore did not fall within this exclusion. Failing this, the appellant contended that the products were not, in any case, confectionery and were therefore still zero-rated. HMRC argued that the products were confectionery and consequently standard-rated.
The FTT first considered whether the products were cakes within the meaning of the VAT legislation. Given the absence of a statutory definition of cake, the FTT employed a multifactorial test. This approach was informed by previous case law including Procter & Gamble [2009] EWCA Civ 407 and more recently The Core (Swindon) Ltd [2020] UKUT 301 (TCC). Factors examined included: the nature and description of the products; the ingredients; the manufacturing process; the size and appearance; the taste and texture; the packaging; the marketing; and the circumstances of consumption.
Whilst the products looked and had the appearance of cakes, the FTT concluded that the ingredients, taste, packaging, marketing and pattern of consumption of the products were all such that an ordinary person would not consider them cakes.
Having lost the argument on cakes, the taxpayer’s recourse was to argue that the products were not to be regarded as confectionery. A legislative note (VATA 1994 Sch 8 Group 1 Note 5) provides that confectionery ‘includes chocolates, sweets and biscuits; drained, glace or crystallised fruits; and any item of sweetened prepared food which is normally eaten with the fingers’. After some discussion of the correct interpretation of this note, the FTT concluded that its effect was to expand confectionery beyond its normal definition to include those items specifically included in the definition. Consequently, the products were to be regarded as confectionery and were excluded from the zero-rate.
For completeness (although strictly unnecessary), the FTT carried out another multifactorial test and concluded that an ordinary person would find that the products were not confectionery. Unfortunately for the taxpayer, given the conclusion on the legislative note, this further conclusion was academic and did not mean the product could be zero-rated.
Why it matters: This is yet another case that demonstrates the tension between unchanging VAT rules and a constantly evolving food landscape. From a technical perspective, the interpretation of the effect of the legislative note (Sch 8 Group 1 Note 5) as expanding the ordinary meaning of confectionery is interesting and of potential relevance to a range of food products. Practically, the case demonstrates the difficulties that taxpayers will have in achieving zero-rating for this increasingly popular kind of sports nutrition snack even where a product resembles a traditional cake or flapjack. The confusion is perhaps not assisted by HMRC’s longstanding policy to zero-rate ‘traditional’ flapjacks despite probable technical deficiencies in that position.
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