Supermarket giant Morrisons has been defeated by HMRC at the tax tribunal on the third visit over the VAT treatment of Nakd snack bars
At the latest hearing at the First Tier Tribunal (FTT), the judge ruled that the snack bars are confectionery and do not qualify for zero-rate VAT.
Morrisons originally attempted to claim £1.1m from HMRC on the sales of Nakd and Organix bars, which are aimed at children and marketed as a ‘healthy food item’.
This case first went to the FTT in 2021 after HMRC disagreed with the retailer and the tribunal ruled in favour of the tax authority. Morrisons then appealed to the Upper Tribunal.
The key issues in the appeal related to whether certain Organix and Nakd bar products fell within an exception to zero-rating as confectionery under s8 of Value Added Tax Act 1994 (VATA 1994).
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In 2021, the FTT considered this legislation and rejected Morrisons’ argument.
At the Upper Tribunal Morrisons stated that the FTT did not consider the healthiness of the products, which the Upper Tribunal agreed on that occasion.
However, at yet another first tier hearing, the judge once again ruled that the bars were confectionery, which makes them subject to VAT. The conclusion was made because of the bar’s appearance, texture, and taste.
The bars are also classified as red on the traffic light system due to the sweetened nature of the bars, leading to the decision.
Sarah Halstead, technical associate director at RSM said: ‘Although a casual reading of the VAT liability rules for food might give the impression that VAT applies to junk food and healthy food is zero-rated, the healthiness of a product (or lack thereof) is not specifically mentioned in the law.
‘This latest decision in the Morrisons case will only add to the consistent calls for the VAT position of food to be simplified and we may see Morrisons seek to appeal the decision again.’
