VAT has often held the answer to many of life’s greatest mysteries.
Why does my sandwich cost more if I eat in rather than eat out? Or if I say yes to wanting it heated, even if I do take it away? Answer: VAT. A cold sandwich to take away is a standard rated supply of prepared food. A cold sandwich to eat in, or hot sandwich to eat in or take away, is a standard-rated catering supply.
Why am I always asked to fumble for my boarding pass when buying anything at the airport? Answer: VAT. Pre-Brexit, if you bought something at the airport and showed a boarding pass for a non-EU destination, that was treated as a supply of the goods you had bought for export out of the EU and zero-rated.
Why did Morrisons used to sell two seemingly identical types of rotisserie chicken for different prices? Answer: VAT. The intention was that a hot rotisserie chicken served hot to eat now would be standard-rated, but the same chicken sold cooling for cold consumption later would be zero-rated.
And a recent FTT decision has solved one more: why are giant marshmallows cheaper than smaller ones? Answer: VAT.
The question before the First-tier Tribunal (FTT) in Innovative Bites Ltd v HMRC [2022] UKFTT 352 (TC) (see also page 5) was whether or not giant marshmallows were standard-rated ‘confectionary’ or not. The taxpayer said not. These giant marshmallows were intended to be toasted over a campfire or barbecue and then eaten or ‘used as an ingredient in what is called a “s’more”.’ A s’more, the FTT helpfully explained, is ‘a traditional American night-time campfire treat, consisting of a roasted marshmallow and a layer of chocolate between two digestive biscuits’. Technically, the FTT has done a bit of transatlantic translation there as a purist would say a s’more requires Graham Crackers and neither digestives nor rich tea biscuits quite hit the spot in the same way, but I digress.
Hold on, said HMRC, giant marshmallows can be eaten as a snack from the bag, just like regular marshmallows. They are eaten with the fingers, they could be seen as part of a trend for outsized chocolate and sweets, and regular marshmallows can also be roasted and used in s’mores too.
However, on balance, the FTT agreed with the taxpayer that the giant marshmallows were not confectionary and so should be zero-rated. The decisive factors seem to have been the fact that the giant marshmallows were marketed and sold as a product specifically for roasting, their size made them particularly suitable for that purpose and they were positioned in supermarkets in the barbecue section rather than with sweets.
So what’s the (hot) takeaway from all of this? The devil is always in the detail on tax and never more so than with VAT. For anyone asked to advise on the VAT treatment of a supply, it is really important fully to understand the nature of what is being supplied because some fine distinctions can lead to a 20% increased cost for the end consumer.
Only in VAT-land are giant marshmallows not confectionary, whilst the bread in a Subway sandwich, at least in Ireland, is... (see Bookfinders Ltd v Revenue Commrs [2020] IESC 60).
VAT has often held the answer to many of life’s greatest mysteries.
Why does my sandwich cost more if I eat in rather than eat out? Or if I say yes to wanting it heated, even if I do take it away? Answer: VAT. A cold sandwich to take away is a standard rated supply of prepared food. A cold sandwich to eat in, or hot sandwich to eat in or take away, is a standard-rated catering supply.
Why am I always asked to fumble for my boarding pass when buying anything at the airport? Answer: VAT. Pre-Brexit, if you bought something at the airport and showed a boarding pass for a non-EU destination, that was treated as a supply of the goods you had bought for export out of the EU and zero-rated.
Why did Morrisons used to sell two seemingly identical types of rotisserie chicken for different prices? Answer: VAT. The intention was that a hot rotisserie chicken served hot to eat now would be standard-rated, but the same chicken sold cooling for cold consumption later would be zero-rated.
And a recent FTT decision has solved one more: why are giant marshmallows cheaper than smaller ones? Answer: VAT.
The question before the First-tier Tribunal (FTT) in Innovative Bites Ltd v HMRC [2022] UKFTT 352 (TC) (see also page 5) was whether or not giant marshmallows were standard-rated ‘confectionary’ or not. The taxpayer said not. These giant marshmallows were intended to be toasted over a campfire or barbecue and then eaten or ‘used as an ingredient in what is called a “s’more”.’ A s’more, the FTT helpfully explained, is ‘a traditional American night-time campfire treat, consisting of a roasted marshmallow and a layer of chocolate between two digestive biscuits’. Technically, the FTT has done a bit of transatlantic translation there as a purist would say a s’more requires Graham Crackers and neither digestives nor rich tea biscuits quite hit the spot in the same way, but I digress.
Hold on, said HMRC, giant marshmallows can be eaten as a snack from the bag, just like regular marshmallows. They are eaten with the fingers, they could be seen as part of a trend for outsized chocolate and sweets, and regular marshmallows can also be roasted and used in s’mores too.
However, on balance, the FTT agreed with the taxpayer that the giant marshmallows were not confectionary and so should be zero-rated. The decisive factors seem to have been the fact that the giant marshmallows were marketed and sold as a product specifically for roasting, their size made them particularly suitable for that purpose and they were positioned in supermarkets in the barbecue section rather than with sweets.
So what’s the (hot) takeaway from all of this? The devil is always in the detail on tax and never more so than with VAT. For anyone asked to advise on the VAT treatment of a supply, it is really important fully to understand the nature of what is being supplied because some fine distinctions can lead to a 20% increased cost for the end consumer.
Only in VAT-land are giant marshmallows not confectionary, whilst the bread in a Subway sandwich, at least in Ireland, is... (see Bookfinders Ltd v Revenue Commrs [2020] IESC 60).
