HMRC fails to have its cake and eat it

HMRC loses £300k ‘chocolate brownie’ VAT case

In Pulsin’s Ltd  v HMRC (TC06909) (28 December 2018) the first-tier tribunal allowed the company’s appeal against HMRCʼs decision that zero-rating did not apply to its supplies of ‘raw choc brownies’. The tribunal was critical of the complexity of the VAT legislation surrounding food. Clearly the long-running disputes on zero and standard rated products will continue.

The dispute began in 2016 when Pulsin’s Ltd said that it had wrongly been paying VAT on the products for four years. HMRC stated that the product was not zero-rated on the basis that it did not display enough characteristics of a cake, and insisted that the correct classification is confectionery.


VAT Act 1994 Schedule 8, Group 1 zero-rates ‘Food of a kind used for human consumption’.

The zero-rating of food is complicated as the provision under Group 1 provides for a wide general description (qualifying for zero-rating), subject to excepted items (which must therefore be standard-rated), with exclusions and overriding items to those exceptions (which then re-qualify to be zero-rated).

Excepted item 2 excludes from zero-rating ‘Confectionery, not including cakes or biscuits other than biscuits wholly or partly covered with chocolate or some products similar in taste or appearance’. Note 5 then provides ‘for the purposes of item 2 of the excepted items “confectionery” includes chocolates, sweets and biscuits; drained glace or crystallised fruits; and any item of sweetened prepared food which is normally eaten with the fingers’.

The legislation seeks to zero-rate foods which are nutritional, but standard-rate foods which may be regarded as luxuries. The borderline between what is standard-rated as confectionery and what is zero-rated as a cake is unclear.

If a product has the characteristics of two statutory categories (eg cake and confectionery), then it should be placed in that category for which it has sufficient characteristics to qualify. The test is a matter of ‘informed impression’ as to:

  • ingredients
  • process of manufacture
  • unpackaged appearance (including size)
  • taste and texture
  • circumstances of consumption (including time, place and manner of consumption)
  • packaging
  • marketing
  • shelf life
  • name/description
  • ‘how it behaves’ after it is removed from packaging.

The tribunal examined a number of other products and concluded that while the ingredients used are not the same as a traditional sponge cake, they are consistent with the ingredients of a cake.

The process of manufacture, unpacked appearance, taste and texture were consistent with a conclusion that the product was a cake.

While the marketing reinforced that it may be eaten as a snack, the tribunal considered that cakes, too, are frequently eaten as snacks.

The judge concluded ‘put alongside a slice of traditional Victoria sponge, a French Fancie and a vanilla slice or chocolate éclair the products may look out of place. However, put alongside a plate of brownies, or, for instance, at a cricket or sporting tea where it is more likely that bought and individually wrapped cakes will be served on a plate the products would absolutely not stand out as unusual.’

The tribunal formed the view that the product showed enough characteristics of a cake and was therefore eligible to be zero-rated.