In the UK most basic food stuffs are zero rated. However, the definition of 'basic' is not straightforward and many of the foods are zero rated as a result of historical legislation dating back to the introduction of VAT in 1973.
Famously, cakes are zero rated but not all biscuits are zero rated. However, biscuits wholly or partially covered in chocolate are standard rated. This topic was the subject of a landmark case concerning Jaffa Cakes way back in 1991. The VAT Tribunal had to decide whether a Jaffa Cake was a cake or a biscuit (in case you were wondering, the court ruled it was a cake and hence zero rated)!
Since then, there have been many cases looking at the VAT liability of various foodstuffs. The most recent case concerned the VAT liability of a specific brand called Mega Marshmallows. The confectionery firm in question had won a First-Tier Tribunal (FTT) decision.
The conclusion reached by the FTT was that Mega Marshmallows are not confectionery and that the supply was therefore zero-rated. This was based on findings that Mega Marshmallows are sold and purchased as a product specifically for roasting and are therefore ingredients used in cooking (on a barbecue), rather than sweets. The FTT considered the marketing, the packaging, the size of the product, the positioning in supermarkets and the seasonal fluctuation in sales when reaching its findings.
HMRC appealed their demand for over £472,000 of VAT to the Upper Tribunal. The Upper Tribunal found there was no error of law in the FTT’s decision. The appeal was therefore dismissed. Another interesting case and success for the taxpayer on the VAT liability of a ‘sweet’ product.
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