VAT rules on food products can be ambiguous. The confusing maze of complex legal caveats is a tightrope for manufacturers, retailers, and consumers alike.
Recent debates, such as whether the Marks & Spencer strawberry and crème sandwich is zero-rated or standard-rated for VAT, and appeals concerning the size of marshmallows and the impact on their VAT treatment, highlight the uncertainty businesses face.
So, what is the problem? And, more importantly, what is the solution?
Marks & Spencer’s limited-edition Red Diamond Strawberry & Crème Sandwich is at the centre of recent VAT debates amongst VAT professionals. Containing strawberries, cream cheese, crème fraiche and sweetened brioche-style bread, is the sandwich liable for VAT? While all ingredients are clearly edible, the question is whether it should be zero-rated as food or standard-rated as confectionery. UK VAT law zero-rates most food “for human consumption” but excludes confectionery, which is standard-rated. The tricky part is that confectionery includes chocolates, sweets and “any sweetened prepared food normally eaten with the fingers” - which, arguably, could put this latest offering firmly under scrutiny.
Where does M&S’s sandwich sit? HMRC guidance states bread, cakes, and biscuits are usually zero-rated unless wholly or partly chocolate-covered. The sandwich is not chocolate-covered, but the sweetened bread and creamy filling blur the lines here. It is marketed and shelved as a sandwich, but is also listed under ‘sweet snacks to go’ on M&S’s website, which could ultimately weaken M&S’s case as a zero-rated product.
VAT judgment hinges on interpretation: is it a traditional bakery product or sweetened food eaten with fingers? Similar debates include the Jaffa Cake case, where courts ruled Jaffa Cakes are cakes (zero-rated), not biscuits (standard-rated), based on texture and marketing.
These cases show how marketing or naming cannot easily determine the VAT rate in deciding whether a product is food or confectionery.
These debates reflect a bigger problem: the UK’s VAT system on food is complex, inconsistent, and confusing.
At a recent ICAEW conference, experts from the “How to fix VAT” campaign highlighted how this uncertainty disrupts businesses. Manufacturers and retailers of products like marshmallows, cereal bars, cakes, and biscuits need clarity. Mistakes risk financial penalties or even business failure, making this vital.
VAT uncertainty affects pricing, profit margins, and product development. Businesses need consistency to plan and compete. Often considered the UK’s most contentious tax, ensuring compliance is no small undertaking.
The current system (Schedule 8, Group 1, VAT Act 1994) zero-rates “food for human consumption” but excludes confectionery and certain other items. Definitions rely on decades of case law. For example:
Product innovation keeps blurring these boundaries and challenging outdated definitions as companies compete to create the next big thing.
Experts like Ed Saltmarsh, ICAEW’s Technical Manager for VAT, call for urgent reform:
“The VAT system raises significant revenue but is weighed down by complexity and has not kept pace with product innovation. Countries like Singapore, Australia, and New Zealand have modernised their VAT systems; the UK should follow suit.”
The ICAEW’s ‘How to Fix VAT’ campaign aims to simplify VAT rules and reflect today’s diverse food market.
For now, businesses must:
For help ensuring your organisation is VAT compliant, please get in touch.
