In an increasingly health-conscious world, eating habits have changed dramatically and the First-tier Tribunal (FTT) took that into account in ruling that an egg-, dairy- and gluten-free brownie should be classified as a cake for VAT purposes. The ruling entitled the product’s manufacturer to a tax rebate totalling more than £300,000.
The manufacturer paid VAT at the standard rate on the brownies for years before taking the view that they should have been treated as cakes, which are zero-rated under the Value Added Tax Act 1994. HM Revenue and Customs, however, refused to accept that assertion and rejected the manufacturer’s rebate request.
In ruling on the manufacturer’s appeal against that decision, the FTT noted that the brownies bear little resemblance to a Victoria sponge, a vanilla slice or a chocolate éclair. However, the growing problem of obesity and other social factors has led to growing demand for products that are vegan, lower in sugar content or hypoallergenic. In those circumstances, the public perception of what constitutes a cake has moved on since the 1970s or 1980s.
In upholding the appeal, the FTT placed itself in the shoes of the informed, ordinary consumer. The ingredients of the brownies, the process by which they are made, their taste and texture were all consistent with those of a cake. The product’s description as a brownie also indicated that it fell into the zero-rated category.
The FTT observed in its ruling that the law on the taxation of food items is unfit for purpose, frequently resulting in anomalous outcomes. The definition of what is and is not a cake had in particular given rise to much dispute and resolving the status of the brownies had involved a complex, multi-factorial exercise.
