Glanbia Milk Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 24 March 2022 |
| Neutral Citation | [2022] UKFTT 108 (TC) |
| Court | First-tier Tribunal (Tax Chamber) |
[2022] UKFTT 108 (TC)
Judge Christopher Staker, Caroline Small
First-tier Tribunal (Tax Chamber)
VAT – zero rating – ‘confectionery, not including cakes’ – whether products described as ‘flapjacks’ were confectionery – yes – whether they were cakes – no – VATA 1994, Sch. 8, Grp. 1, excepted item 2 – whether entitled to input tax on purchases if no VAT charged – no - appeal dismissed.
In Glanbia Milk Ltd [2022] TC 08439, the First-tier Tribunal (FTT) found various products all described as ‘flapjacks’ were confectionery but not cakes and therefore standard rated for VAT purposes. However, in the absence of a proper tax invoice showing the correct amount of VAT paid, the appellant had no entitlement to credit for input tax on purchases of the products which their supplier had also incorrectly zero rated.
The appellant was the representative member of a VAT group. One of the members of their group, Glanbia Performance Nutrition (UK) Ltd (GNUK) manufactured nutritional sports and performance protein bars, shakes and powders for brand owners. The case concerned 36 varieties of a product manufactured and sold to various customers including Glanbia Nutritionals (Ireland) Ltd (GNIL), a company in the same corporate group but outside of the VAT group. The products were described as ‘flapjacks’ and had been zero rated by both GNUK and GNIL.
There were two issues to be decided in this case:
- Whether the 36 products described as ‘flapjacks’ were properly standard rated as contended by HMRC.
- If they were properly standard rated, whether GNUK were entitled to credit for input tax when they bought back some of these products from GNIL.
It was not in dispute the products concerned were ‘confectionery’. The appellants argued they were also cakes and, specifically, flapjacks which HMRC guidance indicated, in Notice 701/14, were zero rated. HMRC internal guidance manual did, however, distinguish between traditional flapjacks and cereal bars which were not zero rated. Neither of these had the force of law, the FTT noted.
The FTT considered it was irrelevant whether the products were flapjacks. Not all flapjacks were cakes, and it was cakes that were zero rated under VATA 1994, Sch. 8, Grp 1, excepted item 2. There was no provision for the zero rating of flapjacks. The FTT had to decide if the products in question could correctly be categorised as cakes. In other words, whether they had sufficient characteristics of a cake to fall within the definition of a cake which must be given its ordinary meaning.
The FTT was satisfied the ordinary person would consider a cake to be something made from a thin batter containing flour and eggs, aerated in the process of baking, and sweet. Having considered the ingredients, the production process, the texture and appearance, the function, typical circumstances in which the product was likely to be consumed and the marketing of the products the FTT concluded the ordinary person would not consider the products in question to be cakes. They were not baked. They had a dense chewy consistency but were not sweet. They were individually wrapped with a ‘bar-like’ appearance and most ordinarily people would assume they were eaten with their fingers and on the go. It was intended the high protein content, considered to be the main feature of the products, would promote speedier muscle recovery after exercise and growth of muscle mass. This would not normally be associated with cakes. The products were therefore standard rated.
GNUK had sold some of the products in question to GNIL who had sold a portion to third parties but also sold some back to GNUK who subsequently sold them to alternative third parties. Both GNUK and GNIL had assumed the products were zero rated. No VAT had been charged by either of them. Although HMRC had assessed GNUK on the basis the consideration they received had been inclusive of VAT, they had not assessed GNIL and were now out of time to do so. GNIL had never therefore charged VAT.
GNUK argued, if an element of the consideration they received was VAT, that should also be true of the consideration they paid to GNIL.
Following Zipvit Ltd v R & C Commrs (Case C-156/20) [2022] BVC 1, input VAT was only due if there was an obligation to pay it, but GNIL had never charged VAT. The FTT also noted, at an earlier stage in the Zipvit proceedings (Zipvit Ltd v R & C Commrs [2018] BVC 29), the Court of Appeal had found that to obtain a deduction for input tax it was necessary to show the tax had been paid by producing a fully compliant VAT invoice showing the correct amount of VAT paid in relation to the supplies. The appellant was unable to provide this. The invoices issued by GNIL to GNUK indicated the supply was zero rated so no part of the sale price could be treated as VAT. The VAT on the sales remained unpaid.
The appeal was therefore dismissed in relation to both the classification and the input tax issues.
This is the latest in a long line of cases in which HMRC have successfully argued for the standard rating of cereal bars and similar products that simply weren’t envisaged when zero rating was originally introduced.
In this particular case, by assessing for output tax on sales of the product without allowing any credit for input tax on purchases of the same product, HMRC could perhaps be said to have had their cake and eaten it too.
Comment by Angela Bedi, Senior Tax Writer at Croner-i.
Philip Simpson QC, counsel, appeared for the appellant.
Howard Watkinson, counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondents.
The appeal against the decision of HMRC dated 24 September 2018 to make an assessment to VAT is dismissed.
[1] The Appellant appeals against a decision of HMRC to make an assessment to VAT. The decision was made as a result of HMRC having concluded that supplies of certain goods by a company in the Appellant's VAT group had incorrectly been zero rated rather than standard rated.
[2] These goods were 36 varieties of food products described as “flapjacks”, the principal ingredients of which were oats, syrup and protein. It is not in dispute that all were “confectionery” within the meaning of excepted item no. 2 in Group 1 of Schedule 8 to the Value Added Tax Act 1994. The Appellant contends that they were correctly zero rated because they were “cakes” within the meaning of that provision. In this decision, the Tribunal finds that the products were not “cakes”, and that they fell to be standard rated as “confectionery”.
[3] The Appellant is the representative member of a VAT group that includes Glanbia Performance Nutrition (UK) Limited (“GNUK”). The 36 products in this case were manufactured by GNUK, then sold by GNUK to Glanbia Nutritionals (Ireland) Limited (“GNIL”), a member of the same corporate group that was outside the Appellant's VAT group. GNIL then supplied some of the products back to GNUK, which GNUK then supplied to third party customers. The assessment under appeal included output tax on these last supplies by GNUK to third party customers. The Appellant contends in this appeal in the alternative that if these supplies by GNUK should have been standard rated, then GNIL should also have standard rated its earlier supplies of those same goods to GNUK, and that GNUK is therefore entitled to a credit for the input tax that GNUK is deemed to have paid by virtue of the principle in Tulică and Plavoşin (Joined Cases C-249/12 and C-250/12) [2013] BVC 547. In this decision, the Tribunal rejects this argument, applying Zipvit Ltd v R & C Commrs [2018] BVC 29.
[4] Glanbia Performance Nutrition (UK) Limited (“GNUK”), a member of the Appellant's VAT group, is a manufacturer of nutritional sports and performance protein bars, shakes and powders. Its sales are business to business. The businesses who are its customers own the product brands, and market and distribute the products to their customer bases as their own products. GNUK has the factory facilities for manufacturing such products, and the various brand owners contract with GNUK for GNUK to manufacture their products for them. When a customer wishes to produce a new product, the customer provides GNUK with a product brief, and GNUK formulates a recipe which is then agreed with the customer. GNUK thereafter provides the customer with a finished product, which is wrapped and packaged. GNUK outsources the printing of the wrapping and the packaging, the artwork for which is provided by the customer. The customer is therefore responsible for any information or statements contained on the wrapping and packaging, although GNUK may draw the customer's attention to anything that appears questionable. Because it is GNUK's business customers who market the products to the end consumer, GNUK has no customer marketing team.
[5] Following a visit carried out by HMRC at the Appellant's principal place of business in 2016, HMRC became aware that the Appellant had applied a zero rate of VAT to sales by GNUK of 36 varieties of food products described by the Appellant as “flapjacks”. These had been produced by GNUK for various customers at material times. None remains in production today.
[6] There followed further communications between the parties, in which the Appellant provided further information to HMRC. HMRC also requested and obtained from the Appellant samples of six of the products, which were reviewed by a specialist team within HMRC.
[7] On 24 September 2018, HMRC issued a decision to make an assessment to VAT under s 73 of the Value Added Tax Act 1994 (“VATA”) on the basis that supplies of each of the 36 products should have been standard rated rather than zero rated, being “confectionery” within the meaning of excepted item no. 2 in Group 1 of Schedule 8 VATA (“Excepted Item 2”). This is...
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