Confusion over zero-rated food

  • 18th May 2022

The difference between zero-rated food and standard VAT confectionery is a critical but complex one, which has not been helped by what may appear to be apparently arbitrary rulings. Despite its predecessor losing a notorious ruling over the zero-rating of Jaffa Cakes more than 30 years ago, HMRC refuses to give ground on marginal cases. The latest edible target was the simple flapjack.

As an example of the complexities involved, tap water is zero-rated, but bottled water is not (although a bottle of milk is). It ‘logically’ follows that ice is zero-rated if made from tap water, but not if from bottled water – although good luck telling the difference. Baked goods are a similar minefield.

Flapjacks

There might be in terms of differences between a flapjack and a cereal bar, but flapjacks benefit from zero-rating. This is because they are classed as cakes. Simply because they were around first. The more recent cereal bars are classed as VAT-able confectionery.

Unsurprisingly, HMRC is not happy with the distinction and defines flapjacks as narrowly as possible.

  • HMRC only allow zero-rating of ‘standard’ flapjacks, along with minor variations, such as the addition of dried fruit or chocolate chips.
  • HMRC will not accept any alteration to a flapjack that takes it into the category of being a cereal bar.

In the two cases below, HMRC pursued these distinctions to the detriment of the companies involved.

Glanbia Milk

This company was recently on the wrong side of a First-Tier Tribunal decision. Compared to a ‘standard’ flapjack purchased in a cafe or at a supermarket, the flapjacks produced by Glanbia Milk had less calories, about 10 times less sugar, and very low levels of fat. The products were not baked like traditional flapjacks, and contained significant amounts of protein, an ingredient not traditionally associated with cakes.

DuelFuel

This small start-up has hit a similar problem with its range of flapjacks and protein cake bars, and unfortunately may have to close as a result. HMRC is not permitting zero-rating for their products because of issues similar to the Glanbia Milk case. Based on the taste, texture, ingredients, packaging and marketing, the products produced by DuelFuel are not considered to fall into the cake category.

If you are tempted to embark on a baking career, be warned. HMRC guidance on the VAT treatment of food products (VAT Notice 701/14) can be found here.


All data and figures referred to in our news section are correct at the date of publishing and should not be relied upon as still current.