VAT Food Nuance!

The VAT rules surrounding food products are incredibly nuanced, as is seen in the recent Ferrero UK Ltd case heard at FTT.

The business challenged HMRC’s decision to apply standard-rate VAT to its Nutella Biscuits. The core issue was whether the biscuits were “partly covered with chocolate or a product similar in taste and appearance,” which under UK VAT law would make them subject to the standard rate. Ferrero argued that the biscuits should be zero-rated, like most basic food items, because the chocolate-like component was not a visible or an external covering. HMRC believed the biscuits met the criteria for standard-rating due to the presence of a chocolate-like ring inside the product.

Tribunal Findings

• The FTT ruled in favour of Ferrero UK, concluding that the biscuits were not partly chocolate-covered, and therefore zero-rated.

• The biscuit structure included:

• A biscuit cup

• Nutella filling

• A ring made from a chocolate-like substance

• A biscuit disc on top

The tribunal emphasised that to qualify as “partly covered,” the chocolate must form part of the outer surface of the finished product and be more than de minimis.

HMRC’s Argument

HMRC argued that the chocolate-like ring constituted a partial covering. However, the tribunal disagreed, noting that:

• The ring did not form the outer surface.

• The biscuit’s visible exterior was made up of the biscuit cup and disc lid.

• Even if the ring was considered a covering, it was not sufficient to meet the threshold for VAT standard-rating.

Outcome

Ferrero’s appeal was upheld, and the biscuits were deemed zero-rated for VAT. The FTT acknowledged that this decision might seem inconsistent with a previous case involving United Biscuits’ “Blissfuls,” but found the Nutella biscuits to be distinguishable on the facts.

This case demonstrates the need to carefully consider the VAT liability of food products.  If you’d like any advice or second opinions on this area, please get in touch with your usual VITA contact.