Pulsin' Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 28 December 2018 |
| Neutral Citation | [2018] UKFTT 775 (TC) |
| Date | 28 December 2018 |
| Court | First-tier Tribunal (Tax Chamber) |
[2018] UKFTT 0775 (TC)
Judge Amanda Brown, Duncan McBride
Philip Simpson QC (Scot), Counsel instructed by Grant Thornton appeared for the appellant
Julian Hickey, Counsel instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondents
Value added tax – Zero-rating – Food – Excepted items – Confectionary – Overriding item – Cakes – Healthy brownie – Whether sufficient characteristics to be classified as a cake – Yes – VATA 1994, Sch. 8, Grp. 1, item 1 and excepted item 2 and Note (5) – Company's appeal allowed.
The First-tier Tribunal (FTT) allowed the company's appeal against HMRC's decision that zero-rating did not apply to its supplies of “Raw Choc Brownies”, because the name and description indicated that they were cakes. The “test” for whether goods are cakes, rather than confectionary, is a matter of informed impression.
The dispute concerned the classification for VAT purposes of “Raw Choc Brownies” (the Products) which are produced in four flavours:
- Maca Bliss,
- Almond and Raisin,
- Superberry (raspberry and goji), and
- Peanut Choc Chip.
The Products were individually-wrapped bars, which were produced by cold compression of predominantly: dates, cashews, cacao, various syrups, concentrated grape juice and brown rice bran. All ingredients were intended to be as natural, unprocessed, hypoallergenic and as nutritionally beneficial as possible. Cacao was the predominant flavour of all four variants. The Peanut, Almond/Raisin and Superberry variants also had the flavours identified. Each bar was approximately 8cm long, 5.5cm wide and 1.5cm deep. They were all dark brown in colour. In all variants, small white flecks from the cashews/peanuts were visible. In the variants other than the Maca Bliss, the flavouring ingredients (berries, choc chips, almonds and raisins) were also visible. The pressed surfaces of them were smooth. The cut surface at either end were less smooth. They were of a dense texture.
Group 1 zero-rates “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”. Note (5) provides “for the purposes of item 2 of the excepted items “confectionary” includes chocolates, sweets and biscuits; drained glace or crystallised fruits; and any item of sweetened prepared food which is normally eaten with the fingers”.
HMRC decided that the Products were not zero-rated on the basis that they did not display enough characteristics of a cake. HMRC relied on Kinnerton Confectionary Ltd [2018] TC 06548 seeking to encourage the FTT to focus on how the Product was held out for sale as determining its liability.
Pulsin' Ltd (Pulsin), argued that:
- the Products were insufficiently sweet to constitute confectionary;
- by reference to an overall assessment, the Products should be classified as cakes; and
- if the Products are not classified as cakes, the principle of fiscal neutrality required them to be zero-rated as essentially similar products in competition with the Products that are zero-rated.
The FTT undertook a multi-factorial assessment to determine whether the Products were cakes. The test is the view of the ordinary person, informed as to:
- ingredients;
- process of manufacture;
- unpackaged appearance (including size);
- taste and texture;
- circumstances of consumption (including time, place and manner of consumption);
- packaging;
- marketing;
- shelf life;
- name/description; and
- how it behaves after it is removed from packaging.
HMRC relied on Pulsin's application to be registered for VAT with a business description of Food Manufacturer and categorisation as “Cocoa and chocolate confectionary manufacture”. Pulsin's representative said that he could not remember why he had chosen that category, but that he recollected he was limited, as he had to choose from a list. He confirmed that at registration the Raw Choco Brownies were not being made. Once registered, he did not understand there was a requirement to amend the categorisation, but with a range of products it would be difficult to identify any one categorisation that was appropriate.
The FTT decided that the Product was not overly sweet and was less sweet than the other products, which were tested. However, sweeteners were added and there was a sweetness to the product. These features brought the Products into the definition of confectionary, but subject to the statutory exception for cakes.
The FTT looked at the dividing line between confectionary and cake, but the multi-factorial exercise does not require even a predominance of cake-like factors in order to decide that a product is a cake. What is required is that there are enough features of a cake to be so characterised (para. 62 of the decision).
The “test” for whether the Products are cakes is a matter of informed impression. Considering the factors identified in turn the FTT decided:
- the ingredients used were not the same as a traditional sponge cake, but by reference to the range of products that are treated as cakes, particularly allergen free/vegan cakes, the ingredients are consistent with those of a cake;
- the process of manufacture is to mix press and cool, which is consistent with the manufacture process of items clearly cakes, such as crunch cakes or tiffin;
- the unpackaged appearance was of a cake bar;
- the taste of the simpler Maca Bliss was as one expects from any quality chocolate brownie cake. A wide range of textures was apparent in brownies, as there is in cakes. The taste and texture were consistent with a conclusion that the Products were cakes;
- reviews of the Product showed that most people saw the Product as a snack, but reading those reviews gave the impression that the individuals giving the reason for consumption as snack may have also consumed an individually-wrapped cake bar in the same circumstances. However, confectionary would perhaps have been consumed as an alternative. It is all but impossible to determine in which way this factor points, particularly as the FTT does not understand that HMRC requires that, for instance, the 40g Jaffa Cake snack pack containing 3 Jaffa Cakes is taxed differently to the full box containing 10;
- the packaging of the Product points to convenience/hygiene. An individually-wrapped item facilitates on-the-go eating, but as snacking cakes are taxed as cakes and not confectionary, the fact that the Product was individually wrapped is unlikely now to offer much weight in the multi-factorial exercise. The legends on the packaging may be more illustrative, but, in the case of the Product, the information on the packaging gives no indication that the Product is considered by Pulsin to be anything other than a brownie. The FTT also decided that packaging had to be a lesser factor, as it is easily changed. It would be astonishing if a decision to use an individual laminated foil packet changed the liability of the product inside;
- the marketing of the Products was as a healthy, vegan, egg, dairy and gluten-free brownie. The marketing reinforces that it may be eaten as a snack, but the FTT considered that cakes are frequently eaten as snacks:
- the shelf life of the product is a contra-indicator that the product is a cake, but mostly because the ingredients are less subject to deterioration over time. However, taking this factor taken in isolation, it indicates that the product may not be a cake;
- the name of the product is Raw Choc Brownie. Brownies are generally considered to be cakes and the name and description are indicative of the Products being cakes; and
- the Products behave differently to a sponge cake, less differently to a crunch cake, marshmallow tea cake and similar to tiffin, all of which behave when exposed to the air in a way similar to more traditional confectionary.
On balance, the FTT held that the Products showed enough characteristics of cakes to be so categorised. Thus, zero-rating applied.
The borderline between what is standard-rated as confectionary and what is zero-rated as a cake is unclear, partly because the law was drafted in 1972 and has been amended only once (in 1988): to introduce the tail piece of the note concerning the sweetened prepared food normally eaten with the fingers, which applies to many cakes. There are many cases on the treatment of food. The FTT undertook a multi-factorial assessment of the circumstances. The decision is largely concerned with findings in fact. The dispute is not one of law, but one of fact, although having regard to the law. The FTT said at para. 67 that the law on VAT and food items “is not fit for purpose and will necessarily present apparently anomalous results as tastes and attitudes to eating change”. The FTT fundamentally disagrees with HMRC's guidance that the borderline between cake and confectionary presents few problems.
[1] The dispute in the present appeals concerns the proper classification for VAT purposes of “Raw Choc Brownies” (“Products”) which are produced in four flavours: (i) Maca Bliss, (ii) Almond and Raisin, (iii) Superberry (raspberry and goji), and (iv) Peanut Choc Chip.
[2] By an error correction notice (“ECN”) dated 7 October 2016 the Appellant, Pulsin' Ltd (“Pulsin”) sought to claim repayment of output tax it considered to have been over paid in connection with the sale of the Maca variant over the period 1 September 2012 to 31 August 2016 in the sum of £49,273. Pulsin' had, during that period, treated sales of the product as standard rated but subsequently considered such supplies to be properly taxed as zero rated cakes.
[3] A further ECN was submitted on 6 June 2017 in respect of the other variants for the period 1 May 2013 to 31 May 2017 in the sum of £261,989.
[4] The ECNs were both rejected by HM Revenue and Customs (“HMRC”) by letters dated 27...
To continue reading
Request your trial
-
WM Morrison Supermarkets Plc
...delivered to Mr Watkinson on the Friday before the hearing. [65] Mr Simpson said that the bar had been provided because in Pulsin' Ltd [2019] TC 06909 (“Pulsin”), the FTT had decided that Pulsin bars were cakes and not confectionery, and he had referred to that case in his skeleton argument......
-
Glanbia Milk Ltd
...of this Tribunal is to apply the law as it is. (Corte Diletto UK Ltd [2020] TC 07570 (“Corte Diletto”) at [9] and [13]; also Pulsin' Ltd [2019] TC 06909 (“Pulsin”) at [67].) [29] The words in Excepted Item 2 must be given the ordinary meaning that would be attached to them by the ordinary r......