HMRC loses £300k chocolate brownie VAT case

HMRC has lost a case involving the VAT status of a ‘raw chocolate brownie’ containing no egg, dairy or gluten but which a First Tier Tribunal (FTT) has ruled is a cake and not a chocolate bar, and should therefore be zero-rated, opening the way for manufacturer Pulsin’ to reclaim £300,000 in tax

In Pulsin’ Ltd and the Commissioners for Her Majesty’s Revenue and Customs, [2018] UKFTT 0775, TC06909, the manufacturer said it had originally selected the category ‘cocoa and chocolate confectionary manufacture of’ when filing for VAT with HMRC, partly because of a lack of understanding of the implications of doing so, but was now arguing that its product should not be regarded as confectionary.

The tribunal looked at how sweet the Pulsin’ raw brownie was compared to chocolate bars or other cakes, along with the circumstances in which it was purchased and customer reviews on Amazon and Ocado websites.

As part of its consideration of the issues, the tribunal examined a number of products including brownies produced by Morrisons bakery, Mr Kipling and Pret. Other products under discussion included Mr Kipling french fancies, whole Victoria sponge cake, Tunnocks Tea Cakes, Mr Kipling battenberg bars, as well as tiffin, chocolate crispy cakes, snack packs of Jamaican ginger cake, Walkers fruit cake slices, Cadburys mini rolls, and Soreen malt loaf bars.

In its findings, the tribunal stated that ‘the flavour and sweetness profile experienced by the tribunal on eating was consistent with the overall sugar content of the various products. The texture was dense and similar to the majority of the other brownies tasted’.

In its evidence, HMRC placed significant focus on product placement, arguing that promotion for the Pulsin’ bars in stores like Holland & Barratt, a health food chain, suggested they were a form of sports nutrition. 

The FTT judge said the ‘test’ for whether the products are to be classified as cakes ‘is a matter of informed impression’. While the ingredients used in the raw chocolate brownie are not the same as a traditional sponge cake, by reference to the range of products that are treated as cakes, particularly allergen free/vegan cakes, the ingredients are consistent with those of a cake.

Pulsin’ offers the brownie in four flavours: maca bliss, almond and raisin, superberry (raspberry and goji), and peanut choc chip.  All are sold in individually wrapped bars produced by cold compression of ingredients including dates, cashews, cacao, various syrups, concentrated grape juice and brown rice bran.

The process of manufacture is to mix, press and cool, which is entirely consistent with the manufacture process of items uncontroversially cakes such as crunch cakes or tiffin, and the unpackaged appearance was of a cake bar.

The judge concluded: ‘Put alongside a slice of traditional Victoria sponge, a French Fancie and a vanilla slice or chocolate éclair the products may look out of place.

‘However, put alongside a plate of brownies, or, for instance, at a cricket or sporting tea where it is more likely that bought and individually wrapped cakes will be served on a plate the products would absolutely not stand out as unusual.’

As a result, the raw chocolate brownie is deemed to be zero-rated, which opens the way for Pulsin’ to reclaim £49,273 output tax it considered to have been over paid in connection with the sale of the maca variant over the period 1 September 2012 to 31 August 2016, along with an additional £261,989  in respect of the other variants for the period 1 May 2013 to 31 May 2017.

Pulsin’ Ltd and the Commissioners for Her Majesty’s Revenue and Customs [2018] UKFTT 0775, TC06909 is here

Report by Pat Sweet

Pat Sweet |Reporter, Accountancy Daily [2010-2021]

Pat Sweet was the former online reporter at Accountancy Daily and contributor to the monthly Accountancy magazine, pub...

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