FTT refuses vegan truffle VAT appeal

The manufacturer of a range of vegan truffle balls has failed in a bid to have the product zero rated for VAT as food, with the First Tier Tribunal (FTT) ruling they are a sweet treat for occasional enjoyment rather than a meal replacement

Corte Diletto UK Ltd sought to argue that its ‘Nouri Truffles’, subsequently called ‘Nouri healthy balls’ should not be subject to VAT at the standard rate as they were not examples of confectionery. [Corte Diletto UK Ltd and the Commissioners for Her Majesty’s Revenue and Customs, [2020] UKFTT 75 TC07570].

The company said it had developed the truffles, made out of dates, nuts and other ingredients with flavours such as matcha green tea and chocolate hazelnut, having identified a gap in the market for healthier fruit based snacks which were additive free and not over-sweet.

They were packaged in a luxurious way and promoted as a luxurious item in order to appeal to customers who might not normally seek out a healthy snack.

However, HMRC took the view that the truffle balls were an example of confectionery for VAT purposes, defined as ‘…any item of sweetened prepared food which is normally eaten with the fingers’.

The tribunal heard the manufacturing process involved chopping and preparing the ingredients and mixing them together.

It concluded that ‘while the products are made with natural products which have some nutritional value, have no added sugar and may have lower levels of fat and sugar than some brands of chocolate truffle which are undoubtedly confectionary, it is misleading to say that they are therefore healthy and, as the company seemed to argue, that, as they are healthy they cannot be confectionery’.

For its part, the company asserted that the products would not necessarily be placed in the confectionary aisle but would be with ‘free from’ or healthy foods and bars, and gave oral evidence arguing they were a meal replacement or something to be eaten as a dessert at the end of a meal.

The FTT found, however, that there was no evidence to this effect and said the opposite impression was given by the company’s website and other social media and marketing materials.

This included extracts from a media interview with the founder, who stated that ‘our chocolate flavour is frequently compared to Ferrero Rocher which really does put a smile on our faces’.

An HMRC screenshot from the company website stated: ‘All our truffles are vegan, sugar free and gluten free but most certainly not free from temptation. What’s truly great about them is that they are enjoyed by everyone, whether that be those who are health conscious, dairy intolerant, vegan or just simply love seriously good tasting sweet snacks.’

A soft focus image of the products was accompanied by a comment ‘All set for the week ahead: these healthy truffles in your desk drawer will satisfy your sweet tooth in between meals.’

The FTT stated: ‘There is nothing to suggest that the products are, or are intended to be, a meal substitute or to be eaten as part of a meal.

‘To constitute even a small meal providing approximately 400 calories, one would have to eat at least eight truffles.

‘Despite the Facebook statement that customers say they can eat four and more we consider that the dry texture, richness and cloying nature of the products mean that it would be difficult to eat them in large quantities.

‘Certainly, for most people, it would not be a pleasure to do so.

‘The suggested serving size of three balls is the maximum most people would want to eat at once and this is a snack, not a meal.

‘Further, the fact that the balls are individually wrapped suggests that they are intended to be eaten in small quantities.’

Cake platter

Although this point had not been raised previously, at the tribunal the company sought to argue the products have some of the characteristics of cake and should be classified as such, which would mean they were zero-rated for VAT.

It argued that the products would be eaten in the same circumstances as cake, eg, with a cup of tea (though no evidence was submitted). The new packaging of the three ball pack of the products was similar to the packaging of a cake.

The tribunal was offered a plate which included the products, mini muffins, mini chocolate brownies and Thorntons’ chocolate fudge brownies. The company stated that they looked similar and had all been left out for a week and had all become dry and crumbly, which is characteristic of cake.

The FTT disagreed, stating: ‘Although the products might become dry and crumbly in the air like cakes, they do not possess other characteristics which would enable them to be classified as cakes. ‘They do not look like cakes, even mini cakes.

‘They do not taste like cakes even brownies or tiffin bars or similar. They do not have the texture or consistency of any kind of cake.

‘Their ingredients are different from those of cakes. They are not described or presented or marketed as cakes. They are different in size and shape from cakes.’

In addition, the tribunal judges said the products did, in their view, look out of place among the mini brownies and muffins, stating: ‘They would have looked much more at home in a dish with Ferrero Rocher and Thornton’s rum truffles.’

The FTT went on to find the products are presented as an indulgent treat on the company's website, on the packaging and on the company’s social media feeds. The unpackaged appearance of the product is very similar to items which are undoubtedly confectionery and they are designed to be eaten in small quantities as a nutritious and healthy, but delicious and indulgent snack or between meals as a ‘pick me up’.

There was also a final argument brought by the company that the standard rating of the products is a breach of the principle of fiscal neutrality, when compared with competitor products. The tribunal said it was not clear that the competitor items put forward for comparison have been correctly zero-rated or that they meet the same needs of the consumer, and found there was no such breach.

As a result, the appeal was dismissed and the vegan balls are subject to VAT as confectionery.

Corte Diletto UK Ltd and the Commissioners for Her Majesty’s Revenue and Customs, [2020] UKFTT 75 TC07570

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