A Tax Tribunal ruled in favour of Ferrero UK, stating that their ‘Nutella Biscuits’ are zero-rated for VAT, in yet another food battle HMRC has had over the bizarre tax rules around food.
The case centred on whether the ‘Nutella Biscuits’ were “biscuits… partly covered with chocolate or some product similar in taste and appearance” under VAT law, thereby subjecting them to the standard VAT rate of 20 per cent.
HMRC issued a liability ruling and assessments in 2022, claiming that the biscuits should be taxed at the standard rate of 20 per cent, because a ‘ring’ of chocolate-like substance was visible on the surface, constituting a partial covering.
However, the UK arm of the chocolate giant that owns Nutella, Ferrero Rocher, Kinder, and Tic Tac appealed this decision to the First-tier Tax Tribunal, which held a hearing in July.
The parties presented dictionary definitions to the judges regarding the meaning of “partly” as “to some extent” or “not completely”, and hearing that “covered” was defined as “having a layer or amount of something on it.”
The Tribunal ultimately adopted the approach of using everyday language and context, including consideration of the Oxford English Dictionary definitions.
As a result, the judges, Amanda Brown and Michael Bell, concluded that these biscuits are not “partly covered” in the chocolate-like substance, and that the chocolate-like ‘ring’ and the Nutella filling sit within and between the biscuit elements, making them internal components, not an external covering.
The decision explicitly states that the test for partial covering “cannot be one which is determined by whether the chocolate-like substance is visible,” countering a central point in HMRC’s earlier rulings.
Ferrero UK’s appeal against HMRC’s decision was granted by the Tribunal in August.
Glyn Edwards, VAT director at MHA, told City AM: “The Tribunal found for the manufacturer; however, the Nutella and the ring were not part of the outer surface of the biscuits and could not therefore be a part covering of them.”
“The judge likened the outcome to the VAT treatment of Bourbon biscuits, where chocolate is a layer between biscuit halves and, although visible, does not cover any part of the outer layer of the biscuit.”
The parties have 56 days from the date of this ruling to consider an appeal application.
The VAT headache
“Chocolate biscuits are an endless source of argument between taxpayers and HMRC, but show how VAT hasn’t aged well. Legislation which causes debates over such minute details is bad law,” he added.
British snack businesses and HMRC have long been in legal battles over what constitutes a standard-rated VAT and what constitutes a zero-rated item, given the complexities of the tax code.
Over the last couple of years, a VAT case involving giant marshmallows caused considerable confusion.
HMRC decided that the ‘mega’ marshmallows should have been taxed at the standard rate rather than the current zero-rated rate, resulting in London-based Innovative Bites seeking an appeal of that decision. The case has been in and out of court, taking bizarre turns each time.
The latest development occurred in Marsh, where a court granted an appeal following questions about how people consumed large marshmallows.
Even back in the Summer, M&S’s viral Japanese strawberry sando, while taking the internet by storm, was raising the old familiar question about VAT.