TC03754: Lees of Scotland Ltd; Thomas Tunnock Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 25 June 2014 |
| Neutral Citation | [2014] UKFTT 630 (TC) |
| Date | 25 June 2014 |
| Court | First-tier Tribunal (Tax Chamber) |
[2014] UKFTT 630 (TC)
Judge Anne Scott, LLB, NP, Mr Peter R Sheppard, FCIS, FCIB, CTA
Philip Simpson, Advocate appeared for the Appellants
Luke Connell, Officer of HMRC, appeared for Respondents
Value added tax - Food - Excepted items - Confectionery - Subset cakes - Snowballs - Sufficient characteristics to be classified as cakes - Yes - Appeal allowed.
The First-tier Tribunal (FTT) allowed each of the consolidated appeals by Lees and Tunnock against HMRC's decision that Snowballs covered with coconut were not zero-rated "cakes".
On 10 March 1995, HMRC ruled that the Snowballs that were sold by the companies were standard-rated, not zero rated, following Swedish Snowball Production LtdVAT(1987) 3 BVC 1313 ("Swedish Snowball"). In 1995, that ruling went unchallenged. However, in 2013, both companies claimed that the decision in Swedish Snowball was unsound.
Excepted item 2 of Grp. 1 excepts from zero-rating "Confectionery, not including cakes or biscuits other than biscuits wholly or partly covered with chocolate or some product similar in taste and appearance" (emphasis added). Note (5) of Grp. 1 provides "… for the purposes of the excepted item 2 "confectionery" includes chocolates, sweets and biscuits; drained, glacé or crystallised fruits; and any item of sweetened prepared food which is normally eaten with the fingers".
The dispute was not whether the Snowballs are "confectionery", which was conceded, but whether they are a "cake". The parties agreed that the Snowballs are not a "biscuit". It was not disputed that "cakes" are sweetened prepared food, which is normally eaten with the fingers.
The FTT considered whether the Snowballs have sufficient characteristics of what an ordinary person would consider to be a cake. The word "cake" has its ordinary meaning. Although the VAT treatment of other products is not relevant, the FTT noted that HMRC accept that meringues, teacakes and Jaffa cakes are "cakes" (para. 17 of the decision).
The parties agreed that the following factors, derived from the authorities, fell to be weighed in the balance (para. 18 of the decision):
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(2) ingredients;
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(3) process of manufacture;
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(4) unpackaged appearance (including size);
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(5) taste and texture;
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(6) circumstances of consumption (including time, place and manner of consumption);
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(7) packaging; and
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(8) marketing.
Other factors raised in the course of the hearing or from examining the authorities included:
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(2) shelf life;
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(3) name/description; and
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(4) "how it behaves" after it is removed from packaging.
The decision was largely concerned with extensive findings of fact. For example, at para. 22 of the decision, the FTT listed its findings of fact about the Snowballs as regards taste, texture, appearance, and circumstances of consumption.
The FTT agreed with the reasoning in Goodfellow & Steven LtdVAT(1987) 3 BVC 1313, where the Tribunal stated "This Tribunal is satisfied that there are no objective tests which can be imposed to determine of themselves whether a particular item of confectionery is or is not a "cake"" (para. 45 of the decision).
Also, the FTT agreed with the reasoning in C & E Commrs v Ferrero UK LtdVAT[1997] BVC 408, where Lord Woolfe stated at p. 410 "I do urge tribunals, when considering issues of this sort, not to be misled by authorities which are no more than authorities of fact into elevating issues of fact into questions of principle when it is not appropriate to do so on an enquiry such as this. The tribunal had to answer one question and one question only, was each of these products properly described as biscuits or not?". We substitute the word "cake" for "biscuits" (para. 46 of the decision).
In summary, the FTT noted from the authorities the factors that fall to be weighed in the balance, the fact that there are no objective tests and that the starting point is the view that is taken by the ordinary person in the street. That person shops for the Snowballs, sees the packaging, unwraps them and eats them. The FTT did not consider the type of cake that might be on a cake stand in the Ritz. The FTT considered whether the ordinary person would have concluded that he had been offered a cake once he had eaten it rather than being sold short by being offered a mere confection (para. 47 of the decision).
As regards the marketing and packaging, the FTT held that these factors are largely neutral. Indeed, the marketing and packaging could change at any time (para. 49 of the decision).
The FTT held that the Snowballs lack all of the characteristics of a cake. However, the test is whether the Snowballs display enough of the characteristics of a cake that they should be classified as such. The FTT agreed with Lord Woolfe in Ferrero 2 at p. 411 where he stated "…in each case it must have sufficient characteristics to be characterised as a cake" (para. 51 of the decision).
The Snowballs look like a cake. They are not out of place on a plate of cakes. The Snowballs have the mouth feel of a cake. Most people would want to enjoy a beverage while consuming it. It would often be eaten in a similar way and on similar occasions to cakes, e.g. to celebrate a birthday in an office. The FTT agreed that the Snowballs are a confection to be savored, but not while walking or in the street. Most people would prefer to be sitting when eating the Snowballs and possibly, or preferably, depending on background, age, sex, etc. with a plate, a napkin or a piece of paper or even just a bare table so that the pieces of coconut, which fly off do not create a mess. Although not everyone considers the Snowballs to be cake, the FTT found that these facts mean that the Snowballs have sufficient characteristics to be characterised as cake (para. 53 of the decision).
This decision turns on its particular facts. The FTT found this to be a very fine balancing exercise.
[1]These are two independent appeals which have been consolidated since they raise common issues.
[2]The appeal for Lees of Scotland Limited ("Lees") is against a decision dated 8 March 2013 whereby HMRC rejected repayment claims in the sum of £2,057,497 following a Voluntary Disclosure of a VAT error, submitted on 5 September 2012.
[3]The appeal in respect of Thomas Tunnock Limited "Tunnock's" is against a decision dated 8 March 2013 whereby HMRC rejected repayment claims in the sum of £805,956 following a Voluntary Disclosure of a VAT error, submitted on August 2012.
[4]In February 1995, both Appellants received a ruling from HMRC that their snowball product should be treated as zero rated for VAT purposes in the same way as teacakes (and in the case of Lees also as snowcakes). On 10 March 1995, they were advised that "the liability of snowballs has been incorrectly notified to you as zero rated". That was because a VAT Tribunal had decided that snowballs were a standard rated confectionery. The decision on which HMRC relied was Swedish Snowball Production LtdVAT(1987) 3 BVC 1313 ("Swedish Snowball"). At that time that ruling was not challenged. Both Appellants now argue that that Tribunal decision was unsound.
[5]The only issue for determination in the appeals was whether snowballs are cakes. The appellants contended that they are cakes, and that they should be zero rated. HMRC contended that they are not, and that they should be standard rated.
[6]The Tribunal had the benefit of a Statement of Agreed Facts and a Statement of Agreed Legal Issues and those are annexed at Appendices 1 and 2 respectively.
[7]The Statement of Agreed Facts specified that it was not intended to be exhaustive, and was explicitly subject to physical examination of the snowballs. We did that. (see paragraph 21 below)
[8]The legislation in force at the date of the decisions under appeal is the Value Added Tax Act 1994 (VATA). Value Added Tax Act 1994 section 30 subsec-or-para 2Section 30(2) provides that a supply of goods or services is zero rated if the goods or services are of a "description" specified in Value Added Tax Act 1994 schedule 8Schedule 8.
[9]Value Added Tax Act 1994 schedule 8 group 1Schedule 8, Group 1 specifies a zero rated supply of "Food of a kind used for human consumption" but it excepts supplies of anything comprised in the "Excepted items".
[10]Excepted item no 2 excepts "Confectionery, not including cakes or biscuits other than biscuits wholly or partly covered with chocolate or some product similar in taste and appearance".
[11]Note 5 to that excepted item provides "…for the purposes of item 2 of the excepted items "confectionery" includes chocolates, sweets and biscuits; drained, glacé or crystallised fruits; and any item of sweetened prepared food which is normally eaten with the fingers".
[12]The authorities cited by the parties and contained in the authorities Bundle are listed at Appendix 3 and are herein referred to by the abbreviated names.
[13]The relevant legislation has changed twice before the legislation with which we are dealing with came into force with effect from 1 May 1988. A number of those authorities relate to the earlier legislation. Value Added Tax (VAT) was introduced in 1972 and, for example, C & E Commrs v Popcorn House LtdELR[1969] 1 QB 760 was concerned with the previous Purchase Tax legislation and supplies were chargeable if they came within the following provision of the Purchase Tax legislation:-
Chocolates, sweets and similar confectionery (including drained, glacé or crystallised fruits); and chocolate biscuits and other confectionery having a case or coating of chocolate couverture, but not including cakes in such a case or coating.
[14]A very similar provision was carried forward into the VAT legislation in 1972 but it was amended with effect from 30 April...
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Glanbia Milk Ltd
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