Raisin the VAT bar on health snacks

The latest entry in the saga of snack bars and their VAT status involves two brands, Organix and Nakd, in a revised decision published by the First-tier Tribunal (FTT).

Organix bars, manufactured by Organix Brands Ltd, are aimed at very young children (12 months plus) and sold in the baby/infant section of food stores. Their two main ingredients are wholegrain oats and raisins, with sunflower oil, fruit juice concentrate and other ingredients that are added according to the flavour of each bar in the range. The fruit juice concentrate, while sweet, was added primarily as a binding agent rather than to add sweetness to the bars. The bars are sweet and soft in texture.

Nakd bars are manufactured by Natural Balance Foods Ltd, with their main ingredient being dates. Nakd bars fall into three broad categories, fruit and nut bars (containing nuts and/or dried fruit and additional flavourings such as cocoa, ginger and lemon), ‘oaties’ (containing oats and raisins plus various flavourings) and ‘crunchies’ (containing soya protein, nuts, raisins and dried fruit). They are sweet in taste and of a firm consistency similar to fudge.

Both manufacturers charged VAT when selling the bars to Morrisons. Having previously charged VAT on the products when selling them in its supermarkets, Morrisons later formed the view that some of the bars from these ranges were in fact zero-rated and submitted claims to HMRC for refunds of overpaid VAT totalling £1.1m. HMRC rejected the claims, taking the view that the bars were standard rated, and Morrisons appealed.

The FTT decision (2021)

VAT law establishes that generally food for human consumption is zero-rated for VAT purposes. However, the law sets out a number of exceptions to this rule, which it specifically excludes from the zero-rate, meaning that they liable to VAT at the standard rate of 20%. One of these exceptions is ‘confectionery’, which the law goes on to define as including chocolates, sweets and biscuits, drained glace or crystallised fruits and any item of sweetened prepared food which is normally eaten with the fingers. 

In 2021, the FTT considered this legislation and decided, in favour of HMRC, that all of the Nakd bars and Organix bars included in the claims are standard rated items of confectionery. 

Morrisons appealed to the Upper Tribunal, arguing that the FTT had been wrong not to consider the healthiness of the product. The Upper Tribunal agreed, and sent the appeal back to the FTT to reconsider. 

The FTT’s remade decision (2024)

The FTT has now reheard the case, and has once again found in favour of HMRC, deciding that the bars were confectionery and therefore subject to VAT. The products are 'confectionery' because they have the appearance, texture, mouthfeel, density and taste of confectionery, and they would be regarded as confectionery by the informed ordinary person in the street. The importance of the look, feel and taste of the products outweighs any other factors that might suggest that they are not confectionery. 

Although a casual reading of the VAT liability rules for food might give the impression that VAT applies to junk food and healthy food is zero-rated, the healthiness of a product (or lack thereof) is not specifically mentioned in the law. When specifically asked to consider this point, the FTT appears to have found that the healthiness of a product is a factor to be considered when determining the VAT treatment of food. However, it is a fairly minor factor, with the look, feel and taste of the product being of primary importance. In this case, the FTT has also found that Nakd bars and Organix bars were only ‘healthy’ in comparison to other sweet snacks and were nevertheless a ‘red light’ product in the government’s traffic light based food labelling system. Regardless of whether refined or natural sugars are used, the product was still ‘sweetened’, which is a specified characteristic of confectionery in the legislation. 

The decision also includes some findings which are inconsistent with other tribunal decisions on food products. In this case, the style of packaging and placement of the products in the supermarket or on its website was found to be unimportant. However, placement and packaging have been cited as a factor relevant to the VAT position in other case law, including the recent Walkers appeal concerning its Sensations Poppadoms range of snack food. 

This latest decision in the Morrisons case will only add to the consistent calls for the VAT position of food to be simplified and we may see Morrisons seek to appeal the decision again.