TC09654 - [2025] UKFTT 01202 (TC)

Mr Hellier urged us to follow the direction given by the Court of Appeal in Ferrero UK Ltd v HMRC [1997] STC 881 both in the context of previous cases and even more so, HMRC guidance, such that we should not “elevate issues of fact into questions of principle”. He contended that our task was a simple one: we needed to determine from the perspective of the ordinary and informed person in the street, or put another way taking a reasonable view of all the facts (see HMRC v Proctor & Gamble UK [2009] EWCA Civ 407 (P&G) paragraph 20 and 21), whether the Biscuits are “partly covered” by the Ring. We were encouraged not to be concerned as to where the line between a zero-rated biscuit and a standard rated biscuit lay, we simply needed to decide whether the Biscuits were standard rated by reference to the statutory test (paragraph 32 P&G).

HMRC submitted that, in this sense, whether a biscuit is “partly covered” is uncomplicated to discern and can clearly be seen by the approach adopted in Blissfuls:

“19.

Both parties agree that the Product is a biscuit. Both parties also agree that there is a biscuit cup base and, despite differences over calculations which neither party took any real issue over, there is a biscuit logo which does not wholly cover the chocolate layer.

20.

The question therefore, it seems to us, is what, if anything, covers the remaining areas which is not covered by the biscuit logo.

21.

The Oxford English Dictionary defines “partly” as “to some extent” or “not completely”. “Covered” is defined as “having a layer or amount of something on it.” We found this useful as a starting point which appears consistent with the approach of the Tribunal in North Cheshire Foods Ltd (1988 Decision 2709) who considered whether thin lines of chocolate on top of a biscuit “partly covered” the biscuit. The Tribunal in that case held that:

“the piping of even a small quantity of chocolate over a biscuit must have the result as a simple practical matter, that it becomes partly covered.”

…

24.

Turning to whether the chocolate covers the biscuit, we were not persuaded by the Appellant’s submission that the covering must be first constituent part of a biscuit to be bitten into, otherwise it is a filling not a covering. In our view, this is not the correct test to apply. We consider that this writes additional words into the legislation. Similarly, we did not find that the “sandwich biscuit” comparison assisted. In our view, it would be a mistake to try to put a gloss on the words of the statute, in what is an acutely fact sensitive exercise, by imposing additional categories of “filling” and “layers” as distinct from “covering”. In our view, while a layer can be contained within the biscuit cup base as it is in this case, this does not prevent it being part of the covering; all will depend on the facts of a particular case. The legislation does not require one layer to be higher than another to be classed as covered and we consider that this would be inconsistent with applying the ordinary meaning of the words of the statute and amounts to writing in additional words.

…

26.

Returning to the test and applying a practical answer to a practical question, namely is the biscuit partly covered by chocolate, we consider that the area which is not covered by the biscuit logo has a layer of chocolate on its surface. We accept that the biscuit logo covers most of the biscuit, but the requirements of the legislation are satisfied even if the covering is only “to some extent”. We asked ourselves, if the biscuit logo does not cover the whole, what covers the remaining area? We consider that the view of the ordinary man in the street informed as we are, would conclude that the biscuit is partly covered by a layer of chocolate.”

Thus, HMRC’s position was that wherever a chocolate substance forms part of the outer layer of the biscuit it must, within the context of a statutory provision intended to tax biscuits partly covered in chocolate, represent a partial covering of the biscuit. In the context of the statutory language “covered” requiring the application of the definition of a “cover” as a noun rather than a verb, “covered” meaning “having a cover, covering or lid.” In this context, Mr Hellier contended that there was no purpose required for the cover; it merely needed to form part of the outer surface of the biscuit.

Relying on the V&DT decision in United Biscuits (UK) Limited v HM Customs & Excise [2003] VDT decision number 18090 (BN Tartelettes), HMRC contended that a filling and a cover were not mutually exclusive, a filling could partly cover a biscuit.

Relying on paragraphs 36, 39 and 46 of the Court of Appeal judgment in Greenspace (UK) Ltd v HMRC [2023] EWCA Civ 106 (Greenspace)we were warned that we must apply the statutory language which, in this case may draw fine distinctions, and it was not for the Tribunal to ameliorate what might be argued to be anomalous outcomes.

After some debate, HMRC accepted that despite the V&DT decision in North Cheshire Foods Ltd v HMCE [1988] VDT decision number 2709 (NCF), a biscuit where a cover of chocolate or similar substance is de minimis, the biscuit will remain eligible to be zero rated (as with the gingerbread man with chocolate eyes).

None of the cases concerning the VAT liability of biscuits nor HMRC’s guidance evaluates the statutory test in exactly the way the Appellant invited us to approach it i.e. to reflect on the common usage of the words “partly covered”.

As confirmed by Jacobs LJ in P&G it is not our role to put a gloss on or otherwise define what “partly covered” means simply to determine whether in the sense of the view that would be taken by an informed consumer (see P&G paragraphs 20 and 23) the Biscuit is partly covered. However, the Tribunal has the benefit of three very recent Court of Appeal and Supreme Court cases which help direct the approach when ordinary terms without statutory definition are used in taxing statutes.

We agree with the Appellant that the test cannot be one which is determined by whether the chocolate like substance is visible. However, having considered the detail of HMRC’s case we do not interpret HMRC’s case as one founded only or materially on the visibility of the Ring despite the language used in the Decisions and the review of them.

We have carefully considered the arguments put to us and consider that the statutory test requires us to examine the outer surface of the finished product as a whole (see in particular the approach adopted in BN Tartelettes) to determine whether chocolate or a similar substance has been laid over the surface of the finished product so as to thereby form the outer surface of that finished product. In so concluding we do not strictly impute a purpose test for the cover, rather it is a test which can be objectively discerned by the informed consumer by asking: is the chocolate like substance laid over the other elements so as to form, in whole or in part, the outer surface of that finished product viewed sensibly?

We consider that to represent a partial covering the chocolate must be more than de minimis. Semantically de minimis and non-trivial may be considered to connote the same approach but on balance we consider that de minimis implies a degree which is largely irrelevant whereas non-trivial may be larger.

We consider that this interpretation of “partly covered” is supported by HMRC’s acceptance, both in guidance and for the purposes of the present hearing, that any chocolate or similar substance embedded into the biscuit dough or forming the filling of a sandwich biscuit does not partially cover the biscuit. Gingerbread men’s eyes, whilst representing a cover (within our interpretation) meet the de minimis criteria.

The Appellant contends that the Biscuits are not partly covered in chocolate because:

A conclusion that the Biscuits are not partly covered by chocolate was consistent with: the marketing which describes them as filled; the terms of the patent; the function of the ‘chocolate’ Ring to cap the outer edge of the nutella and to adhere to both the cup and lid; and the consumer study.

HMRC contends that the Biscuits are partly covered in a chocolate like substance. They submit that the Ring covers the nutella which itself sits on top of and within the biscuit cup. The biscuit disc then partially sits on the Ring, the Ring thereby forms part of the outer surface of the finished product. As in Blissfuls we should conclude that as the biscuit disc only partially covers the top surface of the finished Biscuit and ask what covers the rest, with the only possible answer being that it is the Ring and the Ring has been accepted to be made from a substance similar to chocolate.

They further contend that as the Ring represents at least [REDACTED] of the overall product it cannot be considered to be de minimis.

Having carefully considered the facts as we have found them, we have concluded that the Biscuits are not partly covered in a substance similar in taste and appearance to chocolate.

The construction of the final Biscuit viewed as a whole is that all its outer surface is not covered by the Ring even to a de minimis extent. The Biscuit is constructed so that the nutella filling and the Ring sit within and between the two baked biscuit elements of the finished product which represent the outer surface of that finished product. We accept that the Ring is visible between the two baked (and manifestly not chocolate) elements of the Biscuit. However, the manufacturing process, in accordance with the patent, assembles the final Biscuit such that the nutella and the Ring is lower than the outer surface and, in our view, it does not form part of the outer surface. The outer surface of the Biscuit consists entirely of the biscuit cup and disc lid.

Our decision may appear to be contrary to that reached by the Tribunal in the Blissfuls appeal and such a conflict may be right. However, on the facts, we have decided that the biscuit disc and cup do not together, only partially cover the finished Biscuit whereas the Tribunal in Blissfuls concluded that the biscuit logo on the Blissful was a partial covering. In our view the two baked biscuit elements of the Biscuit are not dissimilar to a traditional sandwich biscuit where the two baked biscuit elements contain (but not fully) the filling element which is plainly visible when the finished product is examined.

Were we to have concluded that the Ring represented a cover applied to the outer surface of the finished Biscuit, we would not have concluded that it was a de minimis covering. The V&DT accepted in NCF that a 1% covering was sufficient to constitute a partial covering. Although only a rough estimate on the basis the parties were agreed that the Ring constituted [REDACTED] of the finished Biscuit and circa [REDACTED] of the upper surface of the ring was visible more than 1% of the product represented visible chocolate like substance.

We note that both skeleton arguments address the question of fiscal neutrality. The Appellant contended only that the principle was relevant (referring to the FTT’s judgment in W M Morrison Supermarkets Plc v HMRC [2024] UKFTT 000181 (TC). In response HMRC submitted that the principle of fiscal neutrality did not apply due to the interpretive requirement to construe the zero-rating provisions strictly as exemptions with refunds. Further, HMRC observed that the closest parallel product to the Biscuits were Blissfuls which, following the Tribunal’s decision in Blissfuls subject to VAT at the standard rate.

Arguments on fiscal neutrality were not elucidated in the hearing.

We have reached our decision in this case without considering the question of fiscal neutrality. That principle requires that goods or services which are relevantly the same should be taxed in the same way. We have determined the relevant characteristics of the Biscuits and applied the statutory language to determine that they are not partially covered in a chocolate like substance. Whilst we accept that the Biscuits are similar to Blissfuls they are not the same product. We do not consider, to the extent that the concept is relevant in this appeal (noting that HMRC contend that it is not) that our decision breaches it.

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.