The UK has one of the most complicated tax systems in the world, and as a result it can give rise to some quirky situations where things are down to a matter of interpretation. This can lead to some interesting tribunals being held between the taxpayer and HMRC. None more so than where VAT is concerned as there can be so many exceptions, and exceptions to the exceptions that it leaves us with a pretty weird lasting position in our tax laws. In this blog post we take a look at some the strangest VAT tribunals and positions on goods.
The Jaffa Cake VAT case
Way back in 1991 McVities went up against HMRC at a tribunal over whether VAT should be charged on the sale of their Jaffa Cakes. The reason for the difference of opinion was that cakes are zero-rated for VAT while chocolate covered biscuits are subject to 20% VAT (more on that later). At the tribunal it was decided that a Jaffa Cake should be taken out of its packaging for a period of 24 hours and if it was a cake it would go hard when stale, and if it was a biscuit it would go soft. The Jaffa Cake went hard when stale and so the ruling was in McVities favour that the sale of Jaffa Cakes was zero-rated.
Warm sausage rolls
Ever wondered why bakers don’t keep the sausage rolls hot after cooking? Well the reason is a quirk in the VAT rules – hot takeaway food is subject to VAT at 20% whereas cold food can be zero-rated. An item of food is only deemed to be served hot if it has been kept hot after being heated, therefore many sellers, such as Greggs, will serve sausage rolls however they come – if you’re lucky and they’ve just cooked them then you have avoided 20% VAT as that is merely circumstance because Greggs have not made any effort to keep them hot.
KFC dip pots
In 2024 KFC went up against HMRC over whether their dip pots were part of a meal or whether they represented a separate sale. The reason for the disagreement was that if deemed part of the meal then the pots would be subject to VAT at 20%, whereas if they were deemed a separate sale of cold takeaway food then it could be zero-rated. Ultimately KFC lost the case as the judge concluded that someone would not order the dip pots on their own as a meal, therefore by default they were part of a meal and subject to 20% VAT.
Not all biscuits are born equally for VAT
We mentioned in the Jaffa Cake case above that chocolate covered biscuits are subject to 20% VAT. But not all chocolate biscuits are born equal in the eyes of HMRC with our beloved VAT rules stating that the chocolate has to be on the biscuit and not inside it for 20% VAT to apply. So for chocolate chip cookies and bourbons, they are zero-rated as the chocolate is inside them. However, it’s not a blanket rule……….
If you buy a gingerbread man then although the chocolate eyes are on the biscuit, it is still zero-rated. However, if the gingerbread man has say a chocolate belt then it will have VAT at 20% applied. The reason for this is that if the chocolate decorations are more than 1% of the surface area of the biscuit then it is deemed a luxury item and subject to the 20% rate of VAT.
Even pets aren’t safe
Wondering what pet to buy? Well maybe the VAT rules can help sway the decision. VAT notice 701/15 says:
Animals that will be kept as pets can be zero-rated only if they are of a kind that is normally used for human food production. For example, rabbits (other than ornamental breeds) are always zero-rated.
So the key to getting a cheap pet is to buy one you would be willing to eat – but not one that looks good enough to eat……
Although we have looked at some of the funnier VAT situations above, what they do prove is that the devil is in the detail and it is important when you are VAT registered to know what the rules say. At Veritons we have years of experience in dealing with VAT so if you have any questions over VAT and how you should be applying it, hit the contact below and book your free intro meeting.