VAT may appear to be mundane to most, but for us accountants it can actually be quite a fun topic of conversation! Value Added Tax (VAT) was introduced 45 years ago but it still causes drama to this day. A chat in the office about our favourite snack foods prompted me to write this post using some examples of common snacks found in your local supermarket to demonstrate.
For snacking or baking?
Due to the intricacies of VAT legislation, similar food items could differ in cost from one aisle to the next. Confusing rules can result in the standard rate of 20 per cent being applied to a similar food item which is zero-rated due to its use or what it’s mixed with.
Nuts are zero-rated, unless shelled, apart from peanuts! However they are subject to VAT if they are roasted or salted, but if you add peanuts to a fruit and nut mix, and more than 25 per cent of the contents are standard-rate, as is the case with dried fruit and chocolate, they are subject to VAT. Nuts right?!
Interestingly, if you buy your dried fruit from the baking aisle rather than the snacking section, you can save yourself the VAT. If it is assumed to be for baking rather than non-essential snacking it is zero-rated, but the packaging must demonstrate this and if they give the “overwhelming impression” that they are more in line with confectionary or snacking they will be subject to VAT (even if the small print says they are for baking).
Percentage of potato content?
You could save yourself the VAT by choosing non-potato savoury nibbles such as Twiglets, prawn crackers, tortilla chips or vegetable crisps. It’s the potato content which makes it interesting… Procter & Gamble ended up owing millions when it was decided that a Pringle was actually a crisp and therefore subject to VAT. It had previously been declared exempt by a High Court judge, who decided it wasn’t a crisp because it was made of less than 50 per cent potato and was packaged in a tube.
A cake or a biscuit, chocolate coated or not?
One of the well-known debates is around the McVities Jaffa Cake being a cake and not a chocolate covered biscuit. Cakes and biscuits, in the eyes of the law, are necessities and are zero-rated, however a chocolate covered biscuit is regarded as a luxury which means the full rate of VAT is payable. In 1991 the Jaffa Cake was the subject of a case taken to a tribunal after the taxman argued that they should be subject to VAT based on their shape and size and because people ate them like biscuits. However, McVities argued that they were small cakes because like a cake they go hard when they are stale rather than soft like a biscuit. McVities won the case and they remain zero-rated.
Rob Case is Head of Tax and is a specialist in VAT. It’s almost impossible to know how every aspect of VAT will affect you and your business – that’s where our experts come in. With vast experience across many sectors, including groups, charities, construction and travel, we’ll take the complexity out of your VAT, ensure that you stay compliant, and provide certainty that you’ll only pay the VAT that you owe.
Contact Rob or any of the tax team on 01242 776000 or firstname.lastname@example.org.