HMRC has lost a case regarding the VAT status of a “raw chocolate brownie”. The raw brownie contains no egg, dairy or gluten, but a First Tier Tribunal (FTT) has nonetheless ruled it to be a cake and not a chocolate bar. This means that the brownie should be zero-rated, entitling the manufacturer, Pulsin’ Ltd, to reclaim up to £300,000 in tax.
When originally filing for VAT with HMRC, the manufacturer categorised its brownie as “cocoa and chocolate confectionery, manufacture of”, partly due to a lack of understanding of the implications surrounding this, but was now arguing that the brownie should not be regarded as confectionery.
When deciding whether or not the brownie was to be classed as cake or confectionery, the tribunal considered a number of factors. This included the sweetness and sugar content of the brownie in comparison to other chocolate bars/cakes, the circumstances in which it is purchased, and customer reviews from websites such as Amazon and Ocado.
Alongside the brownie, for benchmarking purposes, the tribunal examined chocolate brownies produced by Morrison’s bakery, Mr Kipling and Pret a Manger; Mr Kipling French Fancies; whole Victoria sponge cakes; Tunnock’s Teacakes; Mr Kipling Battenberg Bars; tiffin; chocolate Rice Krispie cakes; snack packs of Jamaican ginger cake; Cadbury’s Mini Rolls and Soreen Malt Loaf Bars.
The judge concluded that “the flavour and sweetness profile experienced by the tribunal on eating was consistent with the overall sugar content of the various products. The texture was dense and similar to the majority of other brownies tasted.”
In its counter argument, HMRC focussed on product placement, arguing that the raw chocolate brownie in question was often promoted in health stores, such as Holland and Barrett, as a form of sports nutrition, not as a cake.
The tribunal’s final conclusion was as follows:
“Put alongside a slice of traditional Victoria sponge, a French Fancy 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.”
As a result of this conclusion, the raw chocolate brownie was deemed to be zero-rated.
This paves the way for Pulsin’ Ltd to claim back over £300,000’s worth of output tax that the manufacturer considered to have been overpaid between 1st September 2012 and 31st May 2017 as a result of the incorrect categorisation.
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