WM Morrison Supermarkets Plc
| Jurisdiction | UK Non-devolved |
| Judgment Date | 13 April 2021 |
| Neutral Citation | [2021] UKFTT 106 (TC) |
| Date | 13 April 2021 |
| Court | First-tier Tribunal (Tax Chamber) |
[2021] UKFTT 106 (TC)
Judge Anne Redston
Mr Philip Simpson QC (Scot), instructed by Deloitte LLP, appeared for the appellant
Mr Howard Watkinson QC, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondents
Value added tax – Zero rating – Whether Organix and Nakd bars were confectionery – VATA 1994, s. 30(2) – VATA 1994, Sch. 8, Grp. 1, excepted item 2, – Whether within Note 5 – No – Whether within normal meaning of confectionery – Multi-factorial test to be applied – Yes – Whether they were cakes – No – Appeal dismissed.
The First-tier Tribunal (FTT) dismissed appeals against HMRC decisions that products sold under the Organix and Nakd brands were standard rated for VAT purposes. The products were marketed as snack bars and were properly described as confectionery, which was not zero rated. They were also not zero-rated as cakes.
The appellant was a well-known large retailer. They sold the products in issue in this appeal. There were several bars under the Organix brand and several under the Nakd brand. The appellant contended they were not confectionery and not excepted from zero rating for VAT purposes. Alternatively, they were cakes and should be zero rated.
VATA 1994, Sch. 8, Grp. 1 zero rated the supply of food but not the excepted items. Item 2 excepts “confectionery”. Note 5 to the list of excepted items provided “confectionery” included any item of sweetened prepared food normally eaten with the fingers, and had been introduced, in 1988, to clarify the law and tax all cereal bars.
The FTT considered the meaning of sweetened and agreed with the previous tribunal in Bells of Lazonby Ltd [2008] BVC 4,042that, while the inherent sweetness of core ingredients could be sufficient to bring a product within the normal meaning of confectionery, some sweetening must be added for a product to be “sweetened” as required by Note 5. None of the products, therefore, fell within Note 5, notwithstanding its intention.
Following the High Court decision in R & C Commrs v Premier Foods (Holdings) Ltd [2008] BVC 667, even when a product fell outside of Note 5, a multifactorial test was necessary to determine whether the products were within the ordinary meaning of confectionery which, based on this and other previous caselaw was;
- limited to products that could be described as sweet;
- had been subjected to some form of process;
- was normally eaten with the fingers; and
- was held out to be eaten as a snack or treat.
Other factors, such as packaging or in-store placement might also be relevant but the healthiness or otherwise of the product was deemed to be irrelevant.
On this basis, all the products – the Organix bars and the Nakd bars – were found to be confectionery. The Organix bars were not cakes. They did not share ingredients with the majority of cakes, they did not look like most cakes, they were not called cakes, held out for sale as cakes and would look out of place on a plate of cakes.
Although some of the Nakd bars had borrowed names from cakes, the majority had not, they had no characteristics in common with cakes, didn't look like cakes, would have looked out of place on a plate of cakes and were not held out for sale as cakes. They were confectionery and not cakes.
Appeal dismissed.
Two further aspects of this case were also worth noting.
The FTT was critical of several aspects of the appellants case preparation and refused permission to admit two witness statements and several comparator products. There was no dispute the evidence was relevant to the case, but it was not provided within the relevant time limits and no acceptable reason was given for the serious and significant delay in providing it. Whether it would have had any bearing on the decision remains to be seen.
The appellants argued they should have been entitled to a full refund of all the VAT overpaid on sales to customers but the FTT noted that had they been successful, only the net difference between the output tax overpaid and the input tax that had been recovered on invoices from the manufacturer would have been repayable, subject to any defence of unjust enrichment.
[1] The Appellant, Wm Morrison PLC (“Morrison's” or “the Appellant”) is a well-known large retailer. The products in issue in this appeal (“the Products”) were sold under the Organix brand (“the Organix Bars”) and the Nakd brand (“the Nakd Bars”).
[2] HM Revenue & Customs (“HMRC”) decided that the Products were standard rated for Value Added Tax (“VAT”) purposes because they were “confectionery” within the Value Added Taxes Act 1994 (“VATA”), Sch 8, Part II, Group 1, Item 2. The Appellant appealed to the Tribunal against those decisions, and also against HMRC's refusal to repay VAT of £1,000,163.39 in relation to the Nakd Bars and £97,162.80 in relation to the Organix Bars.
[3] Morrison's submitted that the Nakd Bars and Organix Bars were not confectionery, or in the alternative, that they were zero-rated as cakes. I considered the following:
- whether I should follow the judgment of the VAT Tribunal in an earlier case which had decided the VAT status of three other Organix bars, and concluded I should not, see paragraph 165ff;
- whether there was binding authority as to the meaning of Note 5 to Group 1, which provides that sweetened prepared food…normally eaten with the fingers automatically falls within the meaning of confectionery. HMRC's position was that R & C Commrs v Premier Foods (Holdings) Ltd [2008] BVC 667 (Premier) had decided that the meaning of sweetened in that statutory phrase includes items which are intrinsically sweet, such as dates. I decided that this was not the ratio of Premier, see paragraph 103ff;
- whether Parliament had intended, when it introduced Note 5 in 1988, that all cereal bars would be classified as confectionery. I found that this was their intention, see paragraph 146ff; and
- whether that intention could be taken into account in interpreting the meaning of Note 5, but found that it could not, see paragraph 162.
[4] I went on to decide that the normal meaning of “sweetened” in Note 5 did not include sweetness which was intrinsic to the core ingredients, and that as a result neither the Organix Bars or Nakd Bars came within Note 5. Although they were sweet, they were not “sweetened”.
[5] As a result, a multi-factorial examination was required to decide whether they were confectionery. I made detailed factual findings about all the Products, and considered the parties' submissions. Having identified elements which are characteristic of confectionery, see paragraph 170ff, I carried out multi-factorial examinations and decided that the Bars and the Nakd Bars were confectionery.
[6] I then considered whether they were cakes, taking into account in particular the similarity between the Organix Bars and flapjacks (which HMRC accept are cakes). However, I decided that none of the Products was a cake.
[7] I therefore refused the appeal. The Appellant's Counsel, Mr Simpson, also made submissions about quantum, saying that Morrison's should be repaid the output VAT charged to customers on the Products, without reducing that figure by the input VAT paid to suppliers. I agreed with HMRC's Counsel, Mr Watkinson, that any such repayment had instead to be reduced by the related input VAT. However, this issue was academic given my conclusion on the other matters.
[8] The decision below begins with a summary of the three different appeals made to the Tribunal, and then explains various disputes about the evidence. The main body of this decision begins at paragraph 80.
[9] The Appellant made three appeals concerning the Organix Bars and Nakd Bars. Those appeals were consolidated, and concerns all the Products listed below.
[10] On 3 November 2017, the Appellant submitted an error correction notice on the basis that the following Organix Bars were zero-rated:
- Organix Carrot Cake Soft Oaty bar (the Carrot Cake bar)
- Organix Banana Soft Oaty bar (the Banana bar)
[11] The Appellant also claimed it had overpaid VAT of £97,162.80 for the period from October 2013 to July 2017 in relation to the Organix Bars. HMRC decided that the Organix Bars were standard rated as confectionery, and on 25 October 2018, that decision was confirmed on review. On 23 November 2018, the Appellant appealed to the Tribunal.
[12] On 14 December 2017 the Appellant applied to the Respondents for a non-statutory clearance relating to the rate of VAT chargeable on the supply of three Nakd Bars (“the Initial Nakd Bars”), being:
- Nakd Berry Delight Wholefood Bar (Berry Delight);
- Nakd Cashew Cookie Wholefood Bar (Cashew Cookie); and
- Nakd Cocoa Orange Wholefood Bar (Cocoa Orange).
[13] The Appellant claimed that the Initial Nakd Bars qualified for zero rating. HMRC decided that they were standard rated as confectionery, and on 24 July 2018, after some further correspondence, HMRC issued a review conclusion that upheld that decision. The Appellant appealed to the Tribunal on 22 August 2018.
[14] On 1 November 2018, the Appellant wrote to HMRC claiming that the VAT liability of supplies of the Initial Nakd Bars should be the same as that for supplies of an additional 15 products (“the Additional Nakd Bars”), and claimed that output tax of £1,000,163.39 had been overpaid on those Products during VAT periods October 2014 to July 2018.
[15] These Additional Nakd Bars are:
- Nakd Apple Pie Wholefood Bar;
- Nakd Bakewell Tart;
- Nakd Banana Bread Wholefood Bar;
- Nakd Banana Crunch Wholefood Bar:
- Nakd Berry Bliss Wholefood Bar;
- Nakd Berry Cheeky Wholefood Bar;
- Nakd Blueberry Muffin Wholefood Bar;
- Nakd Cocoa Delight Wholefood Bar;
- Nakd Cocoa Loco Wholefood Bar;
- Nakd Cocoa Twist Wholefood Bar;
- Nakd Ginger Bread Wholefood Bar;
- Nakd Lemon Drizzle Wholefood...
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