In an argument concerning the remit of confectionery and cakes, the taxpayer failed to convince the FTT their “healthy balls” were not confectionery,
Corte Diletto UK Limited (TC75790) contended that its product “Nouri Health Balls” (né Nouri Truffles) made of dates, nuts, and other ingredients with flavours such as matcha green tea and chocolate hazelnut was zero-rated food or cakes. The products were promoted and packaged to appeal to customers who might not normally seek out a healthy snack – “to nourish your body, indulge your soul”.
HMRC argued they were confectionery under VATA 1994 Sch 8, group 1, note 5 as an “item of sweetened prepared food which is normally eaten with the fingers”.
Healthy snack
The tribunal recited the oft-mentioned passage in Ferrero [1979] that the words in the statute must be given their ordinary meaning and that what matters is the view of the ordinary man in the street. Concerning the Note 5 definition, the Premier Foods [2007] judgment that relegated the “sweetened” criterion to just “sweet” was referenced. With regard to cakes, the factors set out in the Torq [2005] case were listed, including packaging and marketing.
Corte Diletto provided photographs to support their contention that Nouri Balls would not be sold from a confectionery aisle. However, the photographs did not show Nouri Balls on the same shelves as healthy comparator products and did not assist the taxpayer’s case. A meal replacement argument was also advanced although, again, lacked any evidence.
Confectionery test
The FTT held that they were sweet due to their inherent sweetness (confusingly however, as set out below, they are less sweet in terms of sugar content than the principle ingredient (dates) and therefore are, arguably, de-sweetened). They were “prepared” even though it involved only mixing and moulding. They were also clearly eaten with the fingers. They were therefore found to be confectionery.
Is it a cake?
The cake argument was advanced late and relied on the raw chocolate brownie decision in Pulsin [2018]. The Nouri Balls did not look like cakes, did not taste like cakes, and were not described or marketed as cakes. Accordingly, they were not cakes.
Confusing VAT treatment
Corte Diletto also asserted that Nouri Balls should be zero-rated due to fiscal neutrality with competitor products. Invoices were provided showing various food products being zero-rated in one store but also standard-rated in another. This was found simply to flaunt the VAT confusion concerning these kinds of items rather than proving they were correctly zero-rated.
Furthermore, the tribunal concluded that Corte Diletto had not satisfied the legal requirement of being similar from the point of view of the consumer.
Comment
Confectionery has been the subject of numerous VAT skirmishes, and rightly so. The definition found in Note 5 raises more questions than it answers and, when ignoring context, can lead to unusual classifications. Sweet-chilli chicken skewers are one example that has been discussed by VAT advisors over a number of years and was proffered in this decision.
One confusing issue, since Premier Foods, is the term “sweetened”. The purported healthiness was questioned in the Nouri Balls decision on the basis of an NHS website which prescribes a ‘red light’ warning for products with more than 22.5g of sugar per 100g. Nouri Balls contained between 30-32g of sugars per 100g.
Lawyers will note that selected website extracts can hardly amount to expert evidence but, in any event, diabetes.co.uk records natural dates as containing 63g of sugar per 100g (about three times more sugar than Nouri Balls). The decision recorded that this measure did not affect the VAT treatment but did go on to find that the product was inherently sweet and therefore confectionery. Natural dates, as fruit, are zero-rated.
Ultimately, over-reliance on VATA 1994 Sch 8, group 1, note 5 should be avoided. The tribunal should not be tempted to fall down that rabbit hole; instead, one should take a step back and ask whether it is confectionery as understood by the ordinary, informed consumer.
In this case, the presence of chocolate in one product and the expressed marketing goal of being one of the recognised players in the confectionery market coupled with the website comments comparing Nouri Balls to Ferrero Rocher were unlikely to have helped. As paraphrased by the tribunal: “a truffle by any other name would taste as sweet”. [1]
[1] Reproduced from AccountingWEB