The case involved the VAT status of a ‘raw chocolate brownie’ containing no egg, dairy or gluten. A First Tier Tribunal (FTT) has ruled it is a cake and not a chocolate bar, and should therefore be zero-rated. This means the manufacturer Pulsin’ is set to reclaim £300,000 in tax.
Pulsin’ 
selected the category ‘cocoa and chocolate confectionery manufacture of’ when filing for VAT with HMRC. This was done partly because of a lack of understanding of the implications of doing so, but as a result they argued its product should not be regarded as confectionery.
The FTT looked at how sweet the Pulsin’ raw brownie was compared to chocolate bars or other cakes. It also looked at the circumstances in which it was purchased and customer reviews on Amazon and the Ocado websites.
As part of its consideration of the issues, the tribunal examined a number of products including brownies produced by Morrisons bakery, Mr Kipling and Pret. Other products under discussion included Mr Kipling french fancies, whole Victoria sponge cake, Tunnocks Tea Cakes, Mr Kipling battenberg bars, as well as tiffin, chocolate crispy cakes, snack packs of Jamaican ginger cake, Walkers fruit cake slices, Cadburys mini rolls, and Soreen malt loaf bars.
In its findings, the FTT stated that ‘the flavour and sweetness profile experienced by the tribunal on eating was consistent with the overall sugar content of the various products. The texture was dense and similar to the majority of the other brownies tasted’.
In its evidence, HMRC placed significant focus on product placement. It argued that promotion for the Pulsin’ bars in stores like Holland & Barratt, a health food chain, suggested they were a form of sports nutrition.
The FTT judge said the ‘test’ for whether the products are to be classified as cakes ‘is a matter of informed impression’. While the ingredients used in the raw chocolate brownie are not the same as a traditional sponge cake, by reference to the range of products that are treated as cakes, particularly allergen free/vegan cakes, the ingredients are consistent with those of a cake.
Its process to manufacture the bars is to mix, press and cool. This is consistent with the manufacture process of items accepted to be cakes such as crunch cakes or tiffin, and the look of the unwrapped product was of a cake bar.
The judge concluded: ‘Put alongside a slice of traditional Victoria sponge, a French Fancie and a vanilla slice or chocolate éclair the products may look out of place.
‘However, put alongside a plate of brownies, or, for instance, at a cricket or sporting tea where it is more likely that bought and individually wrapped cakes will be served on a plate the products would absolutely not stand out as unusual.’
As a result, the raw chocolate brownie is deemed to be zero-rated. This opens the way for Pulsin’ to reclaim £49,273 output tax it considered to have been over paid in connection with the sale of the maca variant over a four year period. They will also reclaim an additional £261,989 in respect of the other variants for a similar length of time.
You can read the full FTT judgement here. VAT is complicated so if you’re involved in a business manufacturing products you might want to talk to one of our VAT experts to make sure you’re applying the regulations correctly. Read more about our VAT services here.
