Revenue and Customs Brief 8/18 -VAT liability of bicarbonate of soda
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of this brief
This brief sets out HMRC’s position following the decision of
First-tier Tribunal in Phoenix Foods Ltd (“Phoenix”). The
issue in this
case was whether bicarbonate of soda sold in small tubs to supermarkets
qualified as zero-rated food or was subject to the standard rate of VAT.
Businesses that manufacture or sell bicarbonate of soda.
Phoenix supplied small 200g tubs (and 25g sachets) of food grade
bicarbonate of soda to supermarkets. The labelling on the tubs referred
to its use as a leavening agent in baking and also to its non-culinary
uses such as a cleaner, deodoriser and mild abrasive.
HMRC argued that bicarbonate of soda should be standard-rated as it
is a product with multiple uses, and that it was only added to food for
‘technological purposes’ as a leavening agent, not for its
Phoenix argued that the product should be zero-rated as the:
- marketing of the product indicated that it was a food ingredient
- product contained sodium which is an essential nutrient
4. The Tribunal Decision
The Tribunal decided that the supplies of bicarbonate of soda in
this case qualified as a zero-rated food ingredient. The Tribunal
accepted that bicarbonate of soda has many uses, but in this case it
was appropriate to consider how the bicarbonate of soda would be used.
Based on the packaging and placements by the supermarkets in their
baking sections, the Tribunal found that the supplies were primarily
used as a baking ingredient.
It pointed out that the product was an essential baking ingredient
for some types of bread and cakes, and contains an essential nutrient,
sodium, which is retained in the bread or cake after it has been baked.
The Tribunal ruled that when sold in this form and packaging it should
5. Changes to HMRC’s policy
HMRC accepts that the product in question is zero-rated. In
particular, it satisfies the conditions in paragraph
3.2 of Food products and VAT (VAT Notice 701/14) for zero rating,
namely that it:
- has some measurable nutritional content (sodium)
- is used solely or predominantly, in the particular form in which
it is supplied, for baking (as evidenced by the way in which it was
held out for sale)
- is not an excepted item
In considering how a product is held out for sale, HMRC will
consider a range of factors including the way in which a product is:
Supplies of bicarbonate of soda that are similar to those made by
Phoenix, where the bicarbonate of soda is in small tubs that are held
out for sale as a baking ingredient, are zero-rated for VAT purposes.
Supplies of bicarbonate of soda that are sold in larger,
industrial-sized quantities, or which are held out for non-culinary
purposes, remain standard-rated.
HMRC will change the relevant guidance and Food
products and VAT (Notice 701/14) to reflect this change in the VAT
treatment of certain supplies of bicarbonate of soda.
6. Unjust enrichment
HMRC reserves the right to refuse claims on the ground of unjust
enrichment where it can be shown that the claimant passed the economic
burden of the VAT charge on to their customers. If a customer is
registered for VAT and entitled to recover input tax on their
purchases, HMRC will normally regard the burden as having been passed
on. Claimants will then have to agree to use the Reimbursement Scheme
before HMRC makes any payment. This is explained further in sections 9
and 10 of VAT
Notice 700/45: how to correct VAT errors and make adjustments or claims.
7. Making a claim
All claims must be made in writing, stating the amount of the claim
and the method by which it has been calculated by reference to
documentary evidence in the possession of the claimant. Claims must
also be broken down by prescribed accounting period.
Only the person who incorrectly accounted for the VAT is entitled to
make a claim to recover it. Any other supplies or claims made on a
different basis must be excluded from these arrangements.
All claims will be subject to the 4-year time limit in section 80(4)
of the VAT Act 1994.
In circumstances where claimants have not taken due care in
submitting valid claims, they may be charged a penalty. They may
therefore incur a penalty if, as a result of a failure to take
reasonable care, their VAT return shows either too little tax due or a
repayment that is too large.
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Article Published/Sorted/Amended on Scopulus 2018-07-13 16:00:00 in Tax Articles