ICAS ICAS logo

Quicklinks

  1. About Us

    Find out about who we are and what we do here at ICAS.

  2. Find a CA

    Search our directory of individual CAs and Member organisations by name, location and professional criteria.

  3. CA Magazine

    View the latest issues of the dedicated magazine for ICAS Chartered Accountants.

  4. Contact Us

    Get in touch with ICAS by phone, email or post, with dedicated contacts for Members, Students and firms.

Login
  • Annual renewal
  • About us
  • Contact us
  • Find a CA
  1. About us
    1. Governance
  2. Members
    1. Become a member
    2. Newly qualified
    3. Manage my membership
    4. Benefits of membership
    5. Careers support
    6. Mentoring
    7. CA Wellbeing
    8. More for Members
    9. Area networks
    10. International communities
    11. Get involved
    12. Top Young CAs
    13. Career breaks
    14. ICAS podcast
    15. Newly admitted members 2022
    16. Newly admitted members 2023
  3. CA Students
    1. Student information
    2. Student resources
    3. Learning requirements
    4. Learning updates
    5. Learning blog
    6. Totum Pro | Student discount card
    7. CA Student wellbeing
  4. Become a CA
    1. How to become a CA
    2. Routes to becoming a CA
    3. CA Stories
    4. Find a training agreement
    5. Why become a CA
    6. Qualification information
    7. University exemptions
  5. Employers
    1. Become an Authorised Training Office
    2. Resources for Authorised Training Offices
    3. Professional entry
    4. Apprenticeships
  6. Find a CA
  7. ICAS events
    1. CA Summit
  8. CA magazine
  9. Insight
    1. Finance + Trust
    2. Finance + Technology
    3. Finance + EDI
    4. Finance + Mental Fitness
    5. Finance + Leadership
    6. Finance + Sustainability
  10. Professional resources
    1. Anti-money laundering
    2. Audit and assurance
    3. Brexit
    4. Business and governance
    5. Charities
    6. Coronavirus
    7. Corporate and financial reporting
    8. Cyber security
    9. Ethics
    10. Insolvency
    11. ICAS Research
    12. Pensions
    13. Practice
    14. Public sector
    15. Sustainability
    16. Tax
  11. CPD - professional development
    1. CPD courses and qualifications
    2. CPD news and updates
    3. CPD support and advice
  12. Regulation
    1. Complaints and sanctions
    2. Regulatory authorisations
    3. Guidance and help sheets
    4. Regulatory monitoring
  13. CA jobs
    1. CA jobs partner: Rutherford Cross
    2. Resources for your job search
    3. Advertise with CA jobs
    4. Hays | A Trusted ICAS CA Jobs Partner
    5. Azets | What's your ambition?
  14. Work at ICAS
    1. Business centres
    2. Meet our team
    3. Benefits
    4. Vacancies
    5. Imagine your career at ICAS
  15. Contact us
    1. Technical and regulation queries
    2. ICAS logo request

The First Tier Tribunal get their teeth into a zero rating dispute

  • LinkedIn (opens new window)
  • Twitter (opens new window)
By Jan Garioch CA

23 January 2019

Main Points:

  • HMRC fails to convince the Tribunal that they were correct to refuse output VAT repayment to Pulsin’ Ltd for their Raw Chocolate Brownies.

  • The Tribunal were critical of the state of the law on the taxation of food items, viewing it as not fit for purpose.

  • The Tribunal’s decision includes some pointed reflections on the state of our modern diet.

Jan Garioch CA discusses a tax tribunal decision about whether chocolate brownies were zero-rated.

Pulsin’ Ltd appealed against HMRC’s decision to refuse to repay output VAT on their Raw Chocolate Brownies. They contended that they had paid output VAT in error since their product was not sweet enough to be confectionary, it could not be classified as a cake and finally that fiscal neutrality required zero rating as similar products were zero-rated.

The Raw Chocolate Brownies are made by cold compression of cacao, dates, cashews, concentrated grape juice and brown rice bran. This produces a dark brown bar with cacao as the primary ingredient.

It is to be hoped that the members of the Tribunal had light breakfasts before tackling this case because they closely examined the Raw Chocolate Brownies alongside Morrison’s brownies, Pret’s brownies, gluten-free and vegan brownies. To augment their carbohydrate binge Mr Kipling French Fancies and Battenberg Bars were available along with Tunnock Tea Cakes and Victoria sponge cakes.

A list of other products ‘known to the Tribunal’ reads like a guilty pleasures list including tiffin, chocolate crispy cakes and snack packs of Jamaican ginger cake.

Examination of the law

The Tribunal, apparently immune to sugar rush headaches, systematically examined the relevant legislation and case law.

Item 1 to Group 1 provides for the zero-rating of “Food of the kind used for human consumption”. Excepted item 2 excludes from zero rating “Confectionary, not including cakes or biscuits other than biscuits wholly or partly covered with chocolate or some products similar in taste or appearance”. Their consideration of Lees of Scotland Ltd & Thomas Tunnock Ltd v HMRC gave them a lot to do. That case found sweetened, prepared foods normally eaten with the fingers are confectionary.

To further decide if the products in question qualified as a cake, the test was the view of the ordinary person informed as to ingredients, manufacture process, unpackaged appearance, taste and texture, time and place of consumption, packaging and marketing.

The Tribunal considered Raw Chocolate Brownies on all of these heads and referred to reviews to discover opinions from members of the public. Since these ranged from ‘very like a brownie’ to ‘nothing like a brownie’ they may not have been of huge assistance.

It is a sad reflection on our modern diet when the Tribunal notes that a majority of processed foods are sweetened. They concluded an element of context must be applied, otherwise, chilli chicken skewers would, nonsensically, come within the definition of confectionary as a sweetened, prepared food normally eaten with the fingers.

From past case law, the Tribunal was clear that the multifactorial exercise (considering ingredients, manufacture process etc) does not require a predominance of cake like factors in order to conclude that any particular product is a cake. What is required is that there are sufficient characteristics of a cake to be so characterised.

For a few of the factors, the Tribunal struggled to see the characteristic of cake in the Raw Chocolate Brownies under scrutiny. Their shelf life is longer than traditional brownies. They also behaved very differently to sponge cake when left unwrapped and exposed to the air. They acknowledged that they would look out of place on a plate beside chocolate eclairs, but felt they would be quite at home on a plate of brownies.

The decision

The Tribunal found ingredients and process of manufacture entirely consistent with being a cake. Therefore, they found no need to consider the fiscal neutrality point and concluded on balance that Raw Chocolate Brownies possessed sufficient characteristics of cake to be classified as such. Zero rating applied and the overpaid VAT is repayable.

Such intensive scrutiny of cakes took a toll on the Tribunal and they complained that the current state of the law on the taxation of food items is not fit for purpose.

They expressed their fundamental disagreement with HMRC’s guidance that the borderline between cake and confectionary presents few problems and see it driving anomalous outcomes.

As a final flourish, they found the favourable taxation of cakes to be entirely anomalous against the backdrop of sugar tax implementation to encourage consumption of healthier soft drinks.

Dispute over input VAT connected with fraudulent evasion of VAT

By Jan Garioch, CA

18 December 2018

MTD Letters to Businesses

By The Tax Team

16 January 2019

2-23-marsh 2-23-marsh
ICAS logo

Footer links

  • Contact us
  • Terms and conditions
  • Modern slavery statement
  • Privacy notice
  • CA magazine

Connect with ICAS

  • Facebook (opens new window) Facebook Icon
  • Twitter (opens new window) Twitter Icon
  • LinkedIn (opens new window) LinkedIn Icon
  • Instagram (opens new window) Instagram Icon

ICAS is a member of the following bodies

  • Consultative Committee of Accountancy Bodies (opens new window) Consultative Committee of Accountancy Bodies logo
  • Chartered Accountants Worldwide (opens new window) Chartered Accountants Worldwide logo
  • Global Accounting Alliance (opens new window) Global Accounting Alliance
  • International Federation of Accountants (opens new window) IFAC
  • Access Accountancy (opens new window) Access Acountancy

Charities

  • ICAS Foundation (opens new window) ICAS Foundation
  • SCABA (opens new window) scaba

Accreditations

  • ISO 9001 - RGB (opens new window)
© ICAS 2022

The mark and designation “CA” is a registered trade mark of The Institute of Chartered Accountants of Scotland (ICAS), and is available for use in the UK and EU only to members of ICAS. If you are not a member of ICAS, you should not use the “CA” mark and designation in the UK or EU in relation to accountancy, tax or insolvency services. The mark and designation “Chartered Accountant” is a registered trade mark of ICAS, the Institute of Chartered Accountants of England and Wales and Chartered Accountants Ireland. If you are not a member of one of these organisations, you should not use the “Chartered Accountant” mark and designation in the UK or EU in relation to these services. Further restrictions on the use of these marks also apply where you are a member.

ICAS logo

Our cookie policy

ICAS.com uses cookies which are essential for our website to work. We would also like to use analytical cookies to help us improve our website and your user experience. Any data collected is anonymised. Please have a look at the further information in our cookie policy and confirm if you are happy for us to use analytical cookies: