TC09095 - [2024] UKFTT 00181 (TC)

The only issue in this case is whether the Products are ‘confectionery’ for the purposes of VAT. Determining whether a particular product is ‘confectionery’ requires consideration of different aspects of its manufacture, supply and consumption. In Proctor & Gamble, Jacob, LJ giving the first judgment of the Court of Appeal, said of the type of task facing a tribunal determining the outcome of a similar multi-factorial assessment at [14]:

“…This sort of question – a matter of classification - is not one calling for or justifying over-elaborate, almost mind-numbing legal analysis. It is a short practical question calling for a short practical answer.”

We respectfully agree. The multi-factorial evaluation is a qualitative exercise rather than a purely numerical assessment. Some factors carry more weight than others. Having considered all the relevant evidence and applied the correct test, whether the Products (or any of them) are confectionery is ultimately a matter of impression. In our view, the Products are ‘confectionery’ because they have the appearance, texture, mouthfeel, density and taste of confectionery, as that term is explained in [29] above, and they would be so regarded by the informed ordinary person in the street. We consider that the importance of the look, feel and taste of the Products outweighs any other factors that might suggest that they are not confectionery. That view is reinforced by the way that the Products are marketed as sweet snacks and treats and perceived as such by purchasers (eg “the perfect treat to indulge in when you’re looking for something a little sweet”; “healthy snacks for people who get peckish between meals”; and “a pleasant change from the chocolate and sugar bars you usually end up with if you are in a ‘snack-grabbing’ mood”). There is an obvious distinction between sweet snacks to eat between meals, such as apples or oranges, which are clearly not confectionery (they are not manufactured for one reason) and the Products. The apples and oranges are high in fibre which allows the body to digest and absorb the sugar at a slower rate. The Products are very high in sugars. For example, a Nakd Berry Bliss Breakfast Bar contains 48.2g of sugar per 100g which is higher than the amount typically found in apples and oranges.

Although we feel that, having recorded the facts found by the original FTT and our own additional findings of fact, little more need be said by way of elaboration in a case such as this, we summarise below our findings on the individual factors that have led us to our conclusion.

The Products all look, feel and taste like confectionery products. They are small bars of a similar size to chocolate or candy bars and are clearly intended to be eaten with the hands. The Products are all slightly sticky to the touch and soft when squeezed. The Products share a soft, moist and chewy mouthfeel although some have a cereal like texture while others are denser and more fudgy. The energy density and mouth feel are also similar to energy dense nougat and fudge. All the Products taste sweet with predominant flavours that are either fruity, chocolatey or nutty (or a mixture of them). We find that flavours of fruit, chocolate and peanuts or other nuts are commonly found in confectionery of different types and the use of them in the Products supports our view that they are confectionery.

The main ingredients of the Products are dried fruits (principally dates and raisins), nuts (cashews, peanuts and almonds) and oats. We accept that these are not the usual ingredients of sweets and chocolates but, as we have explained, ‘confectionery’ is not limited to sweets and chocolates. For example, the term ‘confectionery’ includes items such as cakes and biscuits which are only zero rated because they are specifically excluded from being considered as ‘confectionery’ for VAT purposes by the legislation. We also consider that the term ‘confectionery’ encompasses items that are not made from and do not include ingredients associated with traditional confectionery such as cane sugar, butter or wheat flour but alternatives to or substitutes for those items such as fruit sugars (glucose, fructose), margarine or coconut oil and oat or nut flours. If simply substituting all or some of those for traditional sugar, butter and flour changed the classification of a product as confectionery then that would lead to a breach of the principle of fiscal neutrality which precludes treating similar goods differently for VAT purposes (see Joined Cases C-259/10 and C-260/10 HMRC v The Rank Group plc [2012] STC 420). As the UT held in this case at [115]

“… it is important not to overstate the relevance of such traditional ingredients and to elevate their presence or absence into an essential characteristic. A consideration of whether something is confectionery will inevitably involve comparison with products which are present in items commonly accepted to be confectionery. There will no doubt be examples of confectionery which do not contain such ingredients but which are nevertheless confectionery. But that does not mean consideration of the ingredients, and the absence of traditional ones, will not add to the overall picture of the product’s classification.”

We did not understand Ms Sloane to go so far as to contend that an item of food must contain cane sugar, butter or flour in order to be characterised as confectionery. Her submission was that the Products are made of raw fruit, nuts and oats, which are not commonly found in confectionery, without any added sugar. She stated that the ordinary person in the street would not consider a product made of just fruit, nuts and oats to be confectionery. We do not agree. The dried fruit provides the sweetness associated with confectionery and we doubt the ordinary person in the street would consider where the sugar came from as a relevant characteristic. In our view, the absence of traditional confectionery ingredients does not outweigh the fact that the Products have the most important characteristics of confectionery, namely they appear, feel and taste like confectionery.

We do not consider that the manufacturing process indicates that the Products should not be regarded as confectionery. As far as manufacture is concerned, all that is required in order to be confectionery is that the item is produced by a process of mixing or compounding (but not necessarily cooking) the ingredients. There is no question in this case that the Products are mixed or compounded.

Similarly, there is no doubt that the Products were eaten by purchasers or their children in the same way as confectionery, that is to say eaten with fingers as snacks or treats between meals. We note that some of the Products may be placed in a lunchbox and thus be consumed as part of the midday meal. However, we consider that such Products are still principally a snack item and no less confectionery than a bar of chocolate or a chocolate covered biscuit which is slipped into a lunchbox as a treat.

The UT in this case held in [97] that “there is no reason in principle why healthiness was not a factor to be weighed up along with all the others in the balance when considering how the ordinary person on the street would view the product.” We accept that the products are marketed as healthy although, in our view, they might better be described as ‘healthier’ than some other sweet snacks or treats. All the Products fall within Category 7 of Schedule 1 to the Food Regulations 2021 as foods which are ‘less healthy’ and their placement in stores is regulated. For the reasons discussed at [53] above, we give very little weight to the marketing of the Products as healthy. We also disregard the fact that purchasers perceive the Products to be healthy save insofar as that perception is consistent with the informed person on the street.

We did not find that the packaging of the Products was very helpful in determining whether they are confectionery. Many snack foods which are clearly not confectionery, eg mini salamis and individual cheese portions, are packaged attractively using bright colours which resemble wrapped sweets and some confectionery is plainly packaged eg loose sweets in paper bags. The particular style of packaging in this case was not as informative as the text on the wrappers and boxes which indicates that the products were marketed as snacks or treats.

In an age where sweet shops are an endangered species and supermarkets sell all manner of products under one roof or on the same website, and place items within that space to maximise their sales, we found placement was also of very limited assistance in classifying the Products. The evidence in the First Decision was that the Nakd Bars were historically located in the ‘Free From’ section of the stores and are now placed in the ‘biscuits’ aisle in the ‘healthy biscuits and cereal bars’ section. A retailer’s decision about product placement cannot determine the VAT liability of the product as it does not affect the nature of the product itself only its presentation. That might be evidence of how the retailer views the product but it might also show how the retailer would like customers to view the product. As the UT said at [138] of its decision in this case, placement is a neutral factor at best and we do not consider that the location of the products in a shop or on a website carries any weight in this appeal.

We can deal with Morrisons’ alternative argument that the Products are ‘cakes’ as it was dealt with before us, ie very shortly.

The test to be applied in deciding whether a product is a ‘cake’ for VAT purposes is whether the ordinary informed person in the street would consider the product to be a cake.

Ms Sloane rightly accepted that none of the Products that emulate desserts, biscuits or cakes are presented as cakes, biscuits or puddings. She did not attempt to say that the Nakd Blueberry Muffin Wholefood Bar, for example, is a blueberry muffin. Ms Sloane contended that the ‘lexicon’ of confectionery-related terms used in marketing the Products, which were relied on by HMRC as indicating that the Products are confectionery, in fact suggested that they were ‘cakes’.

We have discussed the significance of marketing above and, in doing so, have not referred to HMRC’s ‘lexicon’ because we do not find it helpful in this case. In relation to the words and descriptions used to market the Products, we agree with the comments of Judge Fairpo in Walkers Snack Foods Ltd v HMRC [2024] UKFTT 31 (TC) at [39]:

“Nominative determinism is not a characteristic of snack foods: calling a snack food ‘Hula Hoops’ does not mean that one could twirl that product around one’s midriff, nor is ‘Monster Munch’ generally reserved as a food for monsters. For the avoidance of doubt, neither of these has been used as a comparator for the products – we refer only to their names in this context. We do not consider that it is appropriate to give any weight to the name of the products in considering whether the products are similar to potato crisps, given the general freedom (within the constraints of trademark law) for manufacturers to choose the name of their product.”

We agree. Simply calling something a cake does not make it a cake.

The original First-tier Tribunal concluded that the Products are not cakes and we agree for all the reasons given in the First Decision. In our view none of the Products can be classified as a cake because they do not have enough of the characteristics of a cake as we understand that term and they are not marketed as cakes.

We acknowledge that some cakes, eg dark fruit cakes such as are eaten at Christmas, contain large quantities of dried fruit and nuts. Such cakes are also sweet, sticky and energy dense. However, they are made of a batter made from flour, egg and sugar into which the ingredients are mixed and then baked to produce a moist, firm sponge cake which breaks down into crumbs and pieces of fruit or nuts when eaten. The taste, texture, mouthfeel and appearance of the Products is thus wholly different from that of a dark fruit cake which is the nearest cake comparator.

Ms Sloane contended that the Organix bars share the appearance and some of the ingredients of flapjacks, which are defined variously in the dictionaries as cakes or biscuits. Leaving aside the question of whether a flapjack is a cake or a biscuit, we agree that the oats found in the Organix bars are also the main constituents of flapjacks and that both flapjacks and the Organix bars are baked. However, that is as far as the similarity goes. Although some flapjack recipes may add raisins or other dried fruit, a typical flapjack does not contain ingredients such as carrot juice, apple juice, dried banana or orange oil. Traditional flapjacks are baked to a crisper texture than the softer Organix bars. More fundamentally, the appearance, taste, texture and mouthfeel of the Organix bars bear no resemblance to a traditional flapjack.

In conclusion, we find that the Products are not cakes or flapjacks.

For the reasons set out above, the appeal is dismissed.

In view of our decision, it is not necessary for us to deal with the issue of quantum.

This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.