United Kingdom VAT & Duties Tribunals Decisions

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H5 Ltd (t/a High Five v Revenue & Customs [2008] UKVAT V20821 (07 October 2008)

20821

VAT – ZERO RATING – CONFECTIONARY – high carbohydrate, low fat sports bar for seriously minded athletes – whether sports bar sweetened – satisfied that the bar could be described as sweet – sweetness derived from the principal and added ingredients – whether the sports bar confectionary – yes– Appeal dismissed

MANCHESTER TRIBUNAL CENTRE

H5 LIMITED Appellant

t/a HIGH FIVE

- and -

HER MAJESTY'S REVENUE and CUSTOMS Respondents

Tribunal: MICHAEL TILDESLEY OBE (Chairman)

ROBERT GRICE (Member)

Sitting in public in Birmingham on 4 September 2008

Michael Atkinson and Tim Atkinson, managing directors for the Appellant

James Puzey, counsel instructed by the Solicitor of HM Revenue & Customs, for the Respondents

© CROWN COPYRIGHT 2008

DECISION

The Appeal

The Appellant was appealing against an assessment dated 21 February 2007 in the sum of £37, 080. The assessment arose from the Appellant's purported incorrect VAT treatment of supplies of energy bars, which had been zero-rated by the Appellant.

The assessment related to supplies of two different categories of energy bars: protein bar and sports bar. At the hearing the Appellant withdrew its Appeal in respect of the protein bar which confined the dispute to the correct VAT treatment of the sports bar.

The Dispute

The dispute concerned whether the sports bar was confectionary which was an exception to the zero-rated treatment of food for human consumption. The VAT Act 1994 defines confectionary as including any item of sweetened prepared food which is normally eaten with the fingers.

The Appellant accepted that the sports bar was prepared food normally eaten with the fingers but contended that it was not sweetened. The Appellant relied on the fact that the natural ingredients of the bar were sufficiently sweet to make it unnecessary to add sweetening matter. The chocolate (yoghurt) and glucose syrup were added for technical reasons not for sweetening the product. The chocolate (yoghurt) covering enabled the sports bar to have a long shelf life. The glucose syrup was necessary to bind the mixture. The Appellant also pointed out that the sports bar was designed specifically for the needs of athletes and not sold in the normal retail outlets for confectionary. In its view the sports bar would not be regarded as confectionary by the ordinary person in the street.

The Respondents contended that the statutory construction of the word sweetened did not require some further sweetener to be added to the food product. The statutory requirement for sweetened was met if the principal ingredient of the bar was naturally sweet. The sports bar was intrinsically sweet which was sufficient to meet the statutory test of sweetened.

The Respondents considered the Appellant's case flawed. The Appellant's construction of the statute was based on the proposition that the act of sweetening was a distinctive part of the manufacturing process which only operated after the preparation of the principal ingredients. Further the construction depended upon a subjective assessment of sweetness identifying a stage in the process beyond which the sweetness of the product was not enhanced by the addition of other ingredients. In the Respondents' view the Appellant's construction was not sustainable in law and not supported by the facts. It introduced uncertainty about when the act of sweetening took place and how sweetness was measured. On the facts the mixing of the raisins with the oats constituted sweetening. The chocolate (yoghurt) made the sports bar sweet to taste.

Finally the Respondents pointed out that the word confectionary should be judged against the statutory definition in the VAT Act 1994. The Appellant's purposes for the use of chocolate (yoghurt) and glucose in the sports bar were irrelevant if in fact the bar fell within the definition. Likewise the fact that the sports bar was designed to meet the needs of a particular market sector had no bearing upon whether the bar was confectionary.

The disputed issues were

(1) Was the sports bar a sweetened product?

(2) Was the sports bar confectionary within the meaning of the VAT Act 1994?

Legislation

Section 30(2) of the VAT Act 1994 provides that a supply is zero-rated if it is of a description specified in schedule 8.

Group 1 of schedule 8 of the VAT Act 1994 so far as is relevant zero rates the supply of food of a kind used for human consumption except a supply of anything comprised in any of the excepted items

Confectionary is one of the excepted items, item 2 states that

"confectionary, not including cakes or biscuits other than biscuits wholly or partly covered with chocolate or some product similar in taste and appearance".

Note 5 to group 1 of schedule 8 defines confectionary as

"confectionary includes chocolates, sweets and biscuits; drained, glace or crystallised fruits; and any item of sweetened prepared food which is normally eaten with fingers".

The Evidence

We heard evidence from the directors of the Appellant. We received in evidence a bundle of documents which the Appellant added to at the hearing. We tasted samples of the three flavoured sports bars plus a bar specially made up without the chocolate or yoghurt coating and the glucose syrup.

The Facts

The Appellant was a small company based in Leicester employing five members of staff. The Appellant manufactured award winning sports and nutritional products for the serious minded athlete.

The sports bar was a high carbohydrate low fat energy bar which was designed when eaten to give an immediate energy boost, and a slow release of sustained energy. The bar came in three flavours: banana, caramel and berry. The bar weighed 55 grams, of which the carbohydrate constituent counted for 41 grams and the fat element 4.5 grams. The sugar in the carbohydrates weighed 20 grams. In comparison, mars bar, double decker and picnic, have a lower carbohydrate and a higher fat and sugar content by weight than the sports bar.

The common ingredients for the three flavours of the sports bar were glucose syrup, oat flakes, rice crisps, raisins, maltodextrin, honey and vitamin B1. The ingredients for the caramel and banana flavoured sports bars also included milk chocolate, caramel paste and banana flavour (banana sports bar only). The additional ingredients for the berry bar were yoghurt and mixed fruit preparation comprising apple, blackcurrant, blueberry, strawberry, blackberry and cherry.

The caramel and banana flavoured sports bars had a chocolate coating. The berry bar, on the other hand, was coated in yoghurt. The various coatings ensured that the sports bars had a long shelf life of up to three years. The components of the yoghurt coating were virtually the same as the chocolate coating and included sugar, cocoa butter and whole milk powder.

The chocolate and yoghurt coatings constituted 20 per cent of the total ingredients of the sports bar, whilst the fruit and cereal ingredients formed 56 per cent of the total.

In the manufacture of the sports bar the ingredients and flavourings were mixed together. The mixture was then extruded, rolled, cut, coated with chocolate or yoghurt, cooled in a tunnel, and finally packaged. The bar was presented in a sealed package carrying the label: Sports High Performance High Energy Bar with a sub line of Chocolate (Yoghurt) Coated High Carbohydrate Fruit and Cereal Bar.

The sports bar was advertised on the Appellant's website as a high carbohydrate energy bar which had been race tested by thousands of athletes in the toughest competitions. The website also emphasised the delicious taste of the bar with its light chocolate coating which brought new levels of taste to the performance bar market.

The Appellant carried out a survey of the views of 100 participants in the National Relay Event at Holme Pierrepoint, Nottingham of the sports and protein bars. The survey was conducted by an independent company Just Sweat No Tears which chose the participants at random. The results of the survey were that 89 per cent of the participants did not consider the bars to be confectionary and 83 per cent felt that the bars were too sweet to taste. The participants who took part in the survey were serious minded athletes. They were not shown the legal definition of confectionary as set out in the VAT Act 1994.

The Appellant retailed the sports bar at 99 pence, which was sold direct through its website or from specialised sports retail outlets. The Appellant had a stated intention to make the bar less sweet.

We tasted the sports bar with and without the chocolate (yoghurt) coating. We found the bar sweet to taste, whether the coating added to the sweetness of the product was difficult to gauge but it improved its taste.

Reasons

The first issue in dispute was whether the sports bar was sweetened within the meaning of the VAT Act 1994. The leading authority on this point is the decision of Sir Andrew Morritt C in Revenue and Customs Commissioners v Premier Foods Limited [2008] STC 176 at paragraph 17:

"Accordingly, it appears the error of the Tribunal in applying the dictum of Lawton J in Popcorn must be recognised as an error of law. Its application also gave rise to two more errors. In paragraphs 26, 27 and 29, the Tribunal clearly directed themselves that for an item to be classified as confectionery for the purposes of excepted item 2 and note (5), its production must have involved (a) a process which can be recognised as cooking and (b) the addition to the primary ingredient of an extra element as sweetness. In my judgment, neither of those elements is a necessary condition for a product to be classified as confectionery. I accept the production of confectionery must involve some process applied to the ingredients in their natural state for that is necessarily implicit in the word. I do not consider that such process can only be one capable of being described as cooking. Any process of mixing or compounding is, in principle, sufficient. Similarly, I accept in its ordinary usage, confectionery is limited to products which can be described as sweet but I cannot see why such sweetness may not be inherent in the principal ingredient in its natural state but must be added by some further sweetener with which it is mixed or compounded. So far as I know, a stick of barley sugar does not involve any addition of further sweetness over and above its principal ingredient yet no one would doubt that it should be categorised as confectionery. It appears that in paragraphs 26, 27 and 29, the Tribunal erred in law in considering those two elements were essential to the categorisation of these fruit bars as confectionery".

The Premier Foods Limited decision undermined the validity of the Appellant's principal argument that the natural ingredients of the sports bar were sufficiently sweet to make it unnecessary to add sweetening matter. Sir Andrew Morritt C clearly stated that the requirement sweetened was met if the product could be described as sweet. The Appellant accepted that the principal ingredients of the bar, the oats and raisins made it sweet. The high carbohydrate composition of the bar ensured that its sugar content was high.

We also find the Appellant's argument flawed factually. It was predicated on the Appellant's assertion that the glucose syrup and chocolate (yoghurt) coating were not added to the sports bar for the purposes of sweetening but to add moisture to the bar and extend its shelf life. However, the fact remained that both these ingredients were sweet containing high quantities of sugar, and that their inclusion in the bar would have had the effect of sweetening it. Further the Appellant accepted that the chocolate or yoghurt coating brought new levels of taste to the bar which in our view amounted to an acknowledgement by the Appellant that the coating sweetened the bar to make it more palatable to eat.

We consider that the Premier Foods Limited decision has removed the uncertainty surrounding the meaning of sweetened. Essentially the decision required was whether the sports bar could be described as sweet. We find that the bar was sweet. The sweetness being derived from the principal ingredients of oat and raisins and from the added ingredients of glucose syrup and chocolate.

The second disputed issue was whether the sports bar would be regarded as confectionary within the meaning as understood by the ordinary person in the street. This was the approach commended by the Court of Appeal in Customs and Excise Commissioners v Ferrero UK Limited [1997] STC 881 when considering the meaning of biscuit within the statutory definition of confectionary.

The Appellant contended that the sports bar did not fall within the ordinary meaning of confectionary. The bar was not sold in the usual retail outlets for confectionary. The bar was targeted at a specific sector of the market, serious minded athletes. Further the survey conducted by Just Sweat No Tears found that that 89 per cent of the respondents did not consider the sports and protein bars to be confectionary.

We decided that the Appellant's contention was not material to whether the sports bar was confectionary. We are concerned with the statutory meaning of confectionary not the meaning attributed to it by the ordinary person in the street. Unlike the word biscuit, confectionary is defined in the VAT Act 1994. The question, therefore, is

"does the sports bar meet the definition of confectionary in excepted item 2 and note (5), that is any item of sweetened prepared food which is normally eaten with fingers".

Decision

The Appellant admitted that the sports bar was prepared food normally eaten with fingers. We found that the bar was sweetened. We, are, therefore satisfied that the sports bar was confectionary within the meaning of excepted item 2 note 5 to group 1 of schedule 8 of the VAT Act 1994. We dismiss the Appeal and make no order for costs.

MICHAEL TILDESLEY OBE

CHAIRMAN

RELEASE DATE: 7 October 2008

MAN/07/0584