Weekly tax brief
Could healthy snack bars be about to change the VAT rules for food?
03 March 2023
As high-profile tax tribunal cases such as those concerning Jaffa Cakes and flapjacks attest, the UK’s rules related to VAT on food are famously complicated and inflexible, with retailers and manufacturers often finding themselves in disputes with HMRC over whether VAT should be charged on a particular product.
Although the law does not consider the healthiness of food when determining its VAT treatment, the casual observer could be forgiven for thinking the rules say that healthy food is zero-rated while junk food and indulgent snacks are subject to VAT.
In the past, the tax tribunals have brushed off arguments that the healthiness of a product has any direct bearing on its VAT position but, in an appeal brought by supermarket giant Morrisons, the Upper Tribunal (UT) has now ruled that this should be taken into consideration after all.
This dispute concerned Organix bars for young children, which are made from wholegrain oats and raisins, and also Nakd bars which are primarily made from dates and have a firm consistency similar to fudge. In 2017, having previously charged VAT, Morrisons formed the view that several snack bars from those ranges should have been zero-rated and submitted a claim to HMRC to recover VAT of £1.1m it believed it had overpaid on their sales.
HMRC rejected Morrison’s claim, deciding that the Organix and Nakd bars in question were confectionery, which is by law specifically excluded from zero-rating. The First-tier Tribunal (FTT) agreed with HMRC, concluding from a number of factors – including taste, texture and colour, whether the bars were eaten with the fingers and how they were packaged and marketed – that the products were confectionery. However, Morrisons appealed, arguing that the tribunal should also have considered the healthiness of the product and whether it was made from the same ingredients as typical confectionery, such as sugar, butter and flour.
The UT has supported this view and has directed that the FTT should rehear the appeal and gather further evidence so it can take the ingredients of the snack bars and their healthiness into consideration when weighing up their VAT treatment.
Morrisons has not yet won its appeal – the actual VAT position of Nakd and Organix bars remains in the balance, at least until the tribunal has had time to reconsider its verdict. But, in the modern health-conscious marketplace, it seems out of step to lump highly nutritious snacks into the same category as sweets and chocolate bars, so manufacturers and retailers of similar snacks will be watching the next stage of the Morrisons case closely to see how the courts might factor in healthiness when determining their VAT position.
Although the law does not consider the healthiness of food when determining its VAT treatment, the casual observer could be forgiven for thinking the rules say that healthy food is zero-rated while junk food and indulgent snacks are subject to VAT.
In the past, the tax tribunals have brushed off arguments that the healthiness of a product has any direct bearing on its VAT position but, in an appeal brought by supermarket giant Morrisons, the Upper Tribunal (UT) has now ruled that this should be taken into consideration after all.
This dispute concerned Organix bars for young children, which are made from wholegrain oats and raisins, and also Nakd bars which are primarily made from dates and have a firm consistency similar to fudge. In 2017, having previously charged VAT, Morrisons formed the view that several snack bars from those ranges should have been zero-rated and submitted a claim to HMRC to recover VAT of £1.1m it believed it had overpaid on their sales.
HMRC rejected Morrison’s claim, deciding that the Organix and Nakd bars in question were confectionery, which is by law specifically excluded from zero-rating. The First-tier Tribunal (FTT) agreed with HMRC, concluding from a number of factors – including taste, texture and colour, whether the bars were eaten with the fingers and how they were packaged and marketed – that the products were confectionery. However, Morrisons appealed, arguing that the tribunal should also have considered the healthiness of the product and whether it was made from the same ingredients as typical confectionery, such as sugar, butter and flour.
The UT has supported this view and has directed that the FTT should rehear the appeal and gather further evidence so it can take the ingredients of the snack bars and their healthiness into consideration when weighing up their VAT treatment.
Morrisons has not yet won its appeal – the actual VAT position of Nakd and Organix bars remains in the balance, at least until the tribunal has had time to reconsider its verdict. But, in the modern health-conscious marketplace, it seems out of step to lump highly nutritious snacks into the same category as sweets and chocolate bars, so manufacturers and retailers of similar snacks will be watching the next stage of the Morrisons case closely to see how the courts might factor in healthiness when determining their VAT position.
