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UK HRMC wins chocolate 20% VAT ruling

  • EU VAT
  • 20 July 2018 | Richard Asquith

UK HRMC wins chocolate 20% VAT ruling

On 21 July, HMRC won an appeal ruling at the First-Tier Tribunal Court against Kinnerton Confectionery, manufacturer of allergen-free chocolate for children. HMRC's assessment was upheld that Kinnerton should be charging full VAT on its nut-free Just Luxury Dark Chocolate bar. HMRC had assessed a liability of £258,470 on Kinnerton for incorrectly zero-rating the bar.

Kinnerton, based in Norfolk, specialises in “character branded” products, such as Pepper Pig and Thomas the Tank Engine and related children’s characters. It promotes itself as “The Careful Chocolate Company - the first food company to separate its production facilities into Nut and Nut Free Zones, allowing millions of people to eat our chocolate with that special degree of reassurance.”

Full VAT on confectionary vs zero-rating on food

Under UK VAT law most food of a kind used for human consumption is zero rated.  However, confectionery, including chocolates, sweets and biscuits, is liable to full VAT at 20%.

To avoid this full tax liability, Kinnerton branded its chocolate as suitable for cooking, saying it was “delicious for cakes and desserts”.  As a general principle, zero rating a product sold for use as an ingredient in home cooking or baking may be zero-rated for VAT.

However, The First Tribunal Court has now backed HMRC’s view that Kinnerton’s chocolate bar had been presented and held out for sale as confectionary. This included supermarkets stocking the bars in their general confectionary isles as suitable for general consumption.

Confusion on food VAT

The Kinnerton cooking chocolate case joins a long list of VAT anomalies on the rules of full vs zero rating for food:

  • Cakes and plain biscuits are zero-rated – except if the biscuit is covered in chocolate as was ruled in the ‘Jaffa Cake’ case, which the manufacturer, McVities, won in 1991.
  • Strawberry flavoured powedered milkshakes incur full VAT; however, chocolate flavour is VAT free.
  • Hot take away food is subject to full VAT; but warm pasties or sausage rolls baked on the premises and put on sale are zero-rated.
  • Twiglets, prawn crackers, tortilla chips and vegetable crisps are nil rated for VAT; Crisps are liable to 20% VAT – as the manufacturers of Pringles found to their cost in a dispute about whether the snack was potato-based.
  • Ginger breadmen with just two chocolate eyes are zero rated; but add chocolate trousers and it becomes liable to 20% VAT.
  • Nuts still in their shells are not liable to VAT; but roasted and de-shelled are subject to full VAT.
  • Ice cream is subject to full VAT; but frozen yoghurt is not.
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VP Global Indirect Tax
Richard Asquith
VP Global Indirect Tax Richard Asquith
Richard Asquith is VP Global Indirect Tax at Avalara, helping businesses understand their compliance obligations as they grow globally. He is part of the European leadership team which this year won International Tax Review's Tax Technology Firm of the Year. Richard qualified as an accountant with KPMG in the UK, and went on to work in Hungary, Russia and France with EY.