The great snowball VAT fight!

Over the years there have been many high profile VAT cases involving food. One of the most famous involved the popular Jaffa Cake – is it a cake or a biscuit? And more recently the great pasty debate – when is hot food not hot food?

Well this time it’s “Snowballs”!

The recent case involves two businesses who both sold marshmallow chocolate covered snowballs. The case has brought up some of the arguments that were previously used in the Jaffa Cake debates.

This is such a contentious issue as the VAT legislation surrounding food is extensive and can prove to be very confusing. Food sales can be subject to the standard rate of VAT at 20% or the zero rate of VAT. To highlight just how confusing an area of VAT this is, consider two very similar food products, ice cream and frozen yoghurt. The legislation, VAT Notice 701/14 Food, states the following:

“You must always standard rate ice cream, similar products and mixes for making them, but you can zero rate frozen yoghurt that is designed to be thawed before being eaten”.

For example the following are standard rated:

• Ice cream and ice lollies
• Frozen yoghurt
• Water ices, sorbets and granitas

And the following are zero rated:

• Baked Alaska
• Mousse
• Frozen yoghurt which needs to be thawed completely before it can be eaten and which has been frozen purely for storage or distributions

The area of legislation that forms the basis of the debate for Snowballs and Jaffa Cakes is whether they qualify as confectionary, which should be standard rated, or cakes which should be zero rated. The tribunal chairman concluded that there is no objective test to determine whether products are cakes or confectionary, instead a number of factors should be considered.

In the Snowball case the chairman considered factors such as ingredients, texture, shelf life, where it was consumed, and how the snowballs “behave” once unpackaged. The tribunal’s decision was that snowball products were confectionary but also had sufficient characteristics of a cake meaning they could be zero rated for VAT.

Following the decision HMRC have issued Business brief 36/2014 VAT – Liability of Snowballs to provide specific guidance and clarification on the point. The legislation clarifies that to qualify as a “snowball” the product should be “a dome of marshmallow coated in a combination of the following:

• Chocolate
• Sugar strands
• Carob
• Cocoa
• Coconut

which may or may not include a jam filling.”

The only clear thing in all of this debate is that the rules surrounding VAT are extremely confusing!

If you are a business involved in the food sector, or you would like professional tax advice on the intricacies of VAT legislation please contact David Barraclough or one of our specialist Tax team on 01522 531341 or email David at david.barraclough@wrightvigar.co.uk he would be delighted to be able to help you.