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17th November 2023

Partner Insight: Interpreting the Wording in VAT Legislation – The Case of McVitie’s

Chamber Partners Centurion VAT (part of the Xeinadin Group) has been looking into the latest VAT case in respect of confectionary. Once again, interpretation has been a key element of the case, which just proves the difficulties businesses can often face when it comes to applying the VAT legislation to their products.

Everyone remembers the Jaffa Cake Case and the question of whether it was a cake or a biscuit. The courts debated this point, and for McVitie’s, if HMRC won the argument and proved it was a chocolate covered biscuit, 20% VAT would have been due. Luckily, McVitie’s succeeded, and were able to establish that their product was a chocolate covered cake, and not a biscuit at all, therefore, it was subject to 0% VAT!

However, in the newest case in the long running debate concerning confectionary, the way in which the legislation is interpreted, has once again been brought into question. For most, it would seem obvious if a biscuit is wholly or partly covered in chocolate. It either is, or it isn’t! But what if it’s filled with chocolate? This is the question that prompted a return to the VAT Tribunal for McVitie’s.

Are their new Blissful Biscuits “covered” in chocolate? They argued not – hence the 0% VAT treatment was applied. The top of their biscuit had no “chocolate covering” on it at all, was their view. Which was factually correct. However, the First Tier Tribunal (FTT) was unconvinced.

Here the issue centred around what partly or wholly covered in chocolate actually means. If you’ve not seen the biscuit yet, McVitie’s Blissful Biscuits are made up of a biscuit cup that is filled with hazelnut and chocolate, and sealed with a lid, also made from biscuit, that contains the McVitie’s logo. The argument was that it was a filled biscuit. Similar to a Bourbon or a Custard Cream, where the filling sat between two layers of biscuit. And, If the biscuit was not partly or wholly, “covered” in chocolate, it should be zero rated.

The problem, which HMRC argued, was that the top layer of biscuit wasn’t the same as the bottom layer, like a Bourbon or a Custard Cream. The top layer was considerably smaller and designed to fit inside the cup to seal, most, but not all, of the chocolate filling inside. However, it didn’t cover all of the filling. It left room, not just at the sides of the lid, but through small holes in the McVitie’s logo, for the filling to peak through. The result of which made the biscuit look like it had some chocolate on its top. But McVitie’s argued that this does not mean it is “covered” partly or wholly, in chocolate!

HMRC fought back. They argued, if the McVitie’s logo doesn’t fit on the top in its entirety, then the “top layer” of the biscuit must also be made of something else. And if it isn’t biscuit, then it can only be the chocolatey filling peeking through the sides and through the small holes in the McVitie logo that makes up the rest of the top layer.

The FTT agreed. The judge stating that, “legislation does not require one layer to be higher than another to be classed as, covered”. Which seems reasonable, although where it says this in the legislation, is unclear. The FTT felt that the ordinary man on the street, if asked, would also view the Blissful Biscuit as being partly covered in chocolate. Therefore, the wording must be taken in its literal meaning and, as a consequence, Blissful’s should be included in schedule 8, group 1, item 2, excepted items, and treated as standard rated – 20% VAT was due!

This case has been an interesting one to watch. Not just because it revolved around biscuits, but because it raised questions about the wording in the VAT legislation and how that wording can be interpreted. HMRC argued that McVitie’s was seeking more from the statute than the wording allowed. So, in response, the FTT brought the ordinary man on the street into the argument. What would, the informed public, view the wording to mean? Well, the concept of something being “covered” in chocolate, to the ordinary man, would very likely mean “covered” in chocolate. So, was the FTT right to bring this into the argument? We shall see. There’s still time for McVitie’s to appeal.

And whilst we can look at these discussions with a degree of levity, at the heart is hard commercial reality in financial terms for the business. Charging £1.20 and considering whether VAT is due or not is the difference between the business retaining £1 or £1.20 as their income. It also offers the potential for a price reduction for the consumer in difficult economic times.

All of this speaks to the importance of considering VAT liability questions within the context of the wording of the existing law and relevant cases.

Our specialist VAT team have supported a range of clients – not just those involved in food production – in determining the VAT treatment of their activities. Liability questions crop up across the service sector as well – areas such as supplies in financial services, education or welfare services provision are common areas of debate and there’s real money at stake when VAT liabilities are incorrectly determined.

If you or your clients need to consider the VAT treatment of supplies, they currently make or for new goods and services being planned, then do get in touch – we’d be happy to chat it through over a coffee and possibly a biscuit.

Contact us via:  IndirectTax@Xeinadin.com

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