VAT Oddities – Never mind Jaffa cakes – what about Skips vs. Monster Munch?
The UK is renowned for having one of the most complicated tax systems in the world. One facet of this is VAT, or Value Added Tax, which is currently paid on the purchase of some items. An in-depth look at the rules – what is VAT-able and what isn’t – throws up some unusual findings.
Products are Standard-rated, Zero-rated or Exempt from VAT. If they are standard rated, you pay 20% extra in tax. If zero-rated they are still technically VAT-able, however the rate is 0%. If they are exempt, there is no VAT to pay. So standard rated –bad, zero rated/exempt –good for the customer.
One of the more famous cases is that of the humble Jaffa Cake. In 1991, its makers – McVities – went to court to argue that Jaffa cakes are, as the name suggests, cakes, and therefore zero-rated for VAT. HMRC’s argument was that given their size, and their usual consumption as an alternative to biscuits, VAT should be charged at the standard rate (like any other chocolate-covered biscuit).
The courts found in favour of McVities, with a critical aspect of the case being what happens when biscuits or cakes go stale. Jaffa cakes were found to go hard instead of soft, when they go stale – like cakes.
Another area of contention is that of crisps – take Doritos and Pringles. To the layman, both would fall under the category of ‘crisps’, however the taxman is a more discerning connoisseur. Doritos, being comprised primarily of corn, are zero-rated for VAT. Pringles however are standard-rated, due to their potato content.
A list of common snack products can be found here, but I’ve included some highlights for you below.
– Monster Munch and Wotsits are standard-rated, but Skips and Twiglets are zero-rated.
– Poppadoms, rice crackers, croutons and pork scratchings are zero-rated.
– Rice cakes – sweetened rice cakes are zero-rated (they are classified with biscuits), savoury flavoured rice cakes are standard-rated. Plain salted rice cakes may or may not be VAT-able, depending on the circumstances.
Other Curios – Food
We’ve gone through the rule-book to find some of the more illogical decisions and definitions made by HMRC.
– Toffee/Chocolate covered apples vs other fruit – Chocolate coated apples are zero-rated, but any other chocolate/yoghurt/toffee coated fruit is standard rated.
– Gingerbread men decorated with chocolate are standard rated ‘unless this amounts to no more than a couple of dots for eyes’ (Yes, HMRC really does say that) in which case it is zero rated.
– As in the McVities case above, chocolate covered biscuits are standard-rated, but non-covered biscuits are zero-rated. Chocolate chip cookies are zero-rated ‘where the chips are included in the dough or pressed into the surface before baking’.
– Ever wonder why cafés ask you if your order is to drink in or takeaway? Your coffee or tea, if consumed on the premises is standard rated for VAT, but if you take it away, it is zero-rated.
– Herbs for consumption are zero-rated. Those that are for ornamental and culinary use may be zero-rated depending on the circumstances – bay plants must not exceed 50cm in height, for example. So if you are using bay leaves for your lamb curry then you don’t pay any VAT, but if a large bay plant is in your living room, then you do!
If you’re finding this interesting, recently in the VAT section of our blog we have covered:
- Director salary
- Working remotely abroad for UK company tax implications
- How to treat VAT on recharged expenses
And more!
So, is there VAT on food?
The answer is not as straightforward as one might expect. In the UK, the application of VAT on food items is a complex affair, with various rates and exemptions depending on the type of food, how it’s prepared, and where it’s consumed.
Generally speaking, most food and drink for human consumption is zero-rated for VAT purposes. This means that while VAT is technically applied, it’s at a rate of 0%, effectively making these items VAT-free.
This zero-rating applies to many basic foodstuffs such as bread, milk, fruits, vegetables, raw meat, fish, and cereals. The rationale behind this is to keep essential food items affordable for everyone.
However, there are notable exceptions to this rule. Certain food items are subject to the standard VAT rate, which is currently 20%. These include:
- Catering: Any food supplied in the course of catering, including restaurant meals and hot takeaway food, is subject to standard-rate VAT.
- Alcoholic drinks: All alcoholic beverages are standard-rated, regardless of where they’re consumed.
- Confectionery: Sweets, chocolates, and other confectionery items are standard-rated.
- Crisps and savoury snacks: These are also subject to the standard rate.
- Hot food: Food that is supplied hot for immediate consumption, such as hot sandwiches or baked potatoes with hot fillings, attracts standard-rate VAT.
- Sports drinks: These are standard-rated, along with other soft drinks and mineral water.
- Ice cream: Ice cream industries and similar frozen products are subject to standard-rate VAT.
The distinction between hot and cold food can be particularly tricky. For VAT purposes, food is considered ‘hot’ if it’s above ambient temperature when sold. This leads to some interesting scenarios.
For instance, a cold pasty is zero-rated, but if it’s sold hot, it becomes standard-rated. This rule famously led to the ‘pasty tax’ controversy in 2012, when the government attempted to clarify the VAT treatment of hot takeaway food vs cold takeaway food.
It’s also worth noting that the place of consumption can affect the VAT rate. Food consumed on the premises of the supplier is always standard-rated, even if it would be zero-rated in a retail sale for consumption off-premises. This applies to any designated eating areas, including shared spaces in food courts.
For businesses in the food industry, understanding these rules is crucial. They must charge the correct VAT rate on their products and accurately report this in their VAT returns. Failure to do so can result in penalties.
The complexity of VAT on food can lead to some seemingly arbitrary distinctions. Potato crisps are standard-rated, but vegetable crisps are zero-rated. Chocolate-covered biscuits are standard-rated, but chocolate chip biscuits are zero-rated.
These nuances highlight the importance of careful consideration when determining the VAT liability of food products.
Some items that might seem like food products are actually not considered food for VAT purposes. These include dietary supplements, food additives, and certain luxury items. In these cases, they are treated as not a food product and are subject to standard-rate VAT.
In conclusion, the VAT rules on food are complex. The general principle is that basic, unprocessed food items are zero-rated, while prepared foods, snacks, and drinks often attract the standard rate.
However, the devil is in the details and businesses in the food industry must navigate a complex set of rules to ensure they’re applying VAT correctly. As always, when in doubt, it’s advisable to consult with a tax professional.
As always, please visit our ask-an-accountant page if you want to know more about your own specific circumstances – or just pick up the phone!