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VAT Oddities – Never mind Jaffa cakes – what about Skips vs. Monster Munch?

17th September 2013

The UK is renowned for having one of the most complicated tax systems in the world. Once 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.

VAT on Jaffa Cakes

Jaffa Cake or Jaffa Biscuit?

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!

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!