Is a ‘healthy brownie’ a cake or confectionary?

Many years ago, there was a long running saga around whether Jaffa cakes were cakes or whether they were actually biscuits. The discussion was around how they should be treated for VAT, and now there is a new variation on the question, this time around a ‘healthy Brownie’.

The Background

The VAT treatment of food is complicated!

Food that is deemed to be ‘of the kind used for human consumption’ is zero-rated. However, ‘confectionery, not including cakes or biscuits other than biscuits wholly or partly covered with chocolate or some products similar in taste or appearance’ are standard-rated. There are also exclusions that apply.

In summary, chocolate cake is zero-rated while a chocolate biscuit is standard rated, deemed to be a luxury item.

I know, about as clear as mud-cake…

Obviously, the application of the classification can make a large difference to the manufacturers of the food items and it is here where the contention arises!

The problem

Pulsin’ Limited argued that their ‘Raw Choc Brownie’ bars were in fact cakes rather than confectionary. 

This decision was mainly based on whether the product would look out of place alongside other individually wrapped cakes. Consequently the ruling said that the brownie bars are cakes and should be zero-rated. Pulsin’ are now able to reclaim over £300,000 of VAT from HMRC.

In its judgement, the FTT stated that the current law around taxation of food is no longer fit for purpose, having been written in the early 1970’s. It went on to state that the HMRC assertion that the distinction between cakes and confectionery  is clear, is no longer the case.

All of this clarifies another anomaly, but suggestions have arisen that Pulsin’ should never have received the funds, as they will not repay the amounts in turn to its customers.

VAT is collected from the final customer, and passed to HMRC by the supplier. If that supplier is not going to repay the amounts collected, should they be allowed to keep what is just a lucky windfall?

There are a lot of companies that could benefit hugely from a windfall of far smaller amounts; is it right that Pulsin’ receives such a reward for its tenacity in appealing the HMRC definition?

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