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In ruling that vegan sweet treats targeted at health food shops should be subject to VAT at the standard rate, the First-tier Tribunal (FTT) lamented the long-standing confusion in the law when it comes to distinguishing between confectionery and cakes.
The current state of the law is that food in general is zero rated for VAT purposes but confectionery is standard rated. An exception is made for cakes and biscuits, which are zero rated, save for chocolate biscuits which are standard rated. The FTT noted that it was difficult to see any logic in those convoluted provisions, which create confusion and have repeatedly been the subject of litigation.
The case concerned a gluten-free product known as 'healthy balls', made from nuts, dates and other natural ingredients with no added sugar. Produced in three flavours, they are promoted as indulgent but healthy. Their manufacturer argued that they are properly classified as zero-rated cakes, but HM Revenue and Customs were equally adamant that they are standard-rated confectionery.
Ruling on the matter, the FTT noted that, whilst bearing no resemblance to traditional sponge cakes, the ingredients of healthy balls are consistent with those of some other vegan or allergen-free products which are viewed as cakes. Their appearance is similar to that of brownies or Jamaican ginger cakes and their process of manufacture is consistent with that of other products uncontroversially classified as cakes.
The FTT, however, noted that one would have to eat at least eight healthy balls to yield the same number of calories as an ordinary meal and that most people would not find it a pleasure to eat that many. Sold in packets of three, they were sweet treats, or snacks, and were not intended to be a meal substitute. They looked like chocolate truffles and were invitingly dusted with nuts or coconut.
After sampling some healthy balls, and viewing them on a plate beside a selection of products recognised as cakes, the FTT concluded that they are confectionery. They were not as sweet as traditional confectionery, but there was no requirement for sugar to be added for them to fall into that category. Their presentation and packaging were also consistent with confectionery.
Healthy balls were clearly sweetened, prepared foods normally eaten with the fingers – the general definition of confectionery given in the notes to the Value Added Tax Act 1994. Although, like cakes, they tended to dry and crumble when exposed to air, they lacked other characteristics which would enable them to be classified as cakes.
The manufacturer argued that zero rating healthy balls was in line with social policy in that they promote Public Health England's aim of reducing the amount of refined sugar in the public diet. However, the FTT noted that even the most sugary, cream-filled or chocolate-covered cakes are zero rated, whereas the healthiest of low-sugar, low-fat confectionery is standard rated.
Whilst the law remains as it is, the FTT ruled that it had no power to determine other than that healthy balls are standard-rated confectionery. The manufacturer's argument that standard rating healthy balls offends against the principle of fiscal neutrality, in that other, comparable products are zero rated, also fell on fallow ground.