Unwrapping the VAT rules on Christmas food

14 December 2023

Accounting & Compliance

Tis the season for festive feasts, and as we prepare to indulge in the holiday spirit we turn our attention to the VAT treatment on some of our festive favourites!

Does it ever cross your mind?

Whilst you enjoy a chocolate biscuit you probably don’t consider whether the chocolate is inside or covering the biscuit.

Why would it matter?

Most underestimate how this seemingly tiny detail would influence the VAT treatment of a product.

Navigating VAT rules can be tricky, evident in some high profile legal battles waged by well known brands to ensure correct treatment of their products.

Here we look a look at twelve Christmas foods and some of the mysterious or bizarre VAT rules around them.

Gingerbread men – its all in the eyes

A gingerbread man will be zero rated provided that there are only 2 chocolate spots for eyes.

Any more chocolate based additions and it’s standard rated!

Biscuits – the chocolate dilemma

Biscuits are generally zero rated, however it can get confusing when chocolate is involved!

A biscuit covered in chocolate is standard rated but a biscuit filled with chocolate is still zero rated, easy right?

Cookies are zero rated as the chocolate is inside the biscuit, chocolate fingers would be standard rated as the are covered.

What about a mixture?

McVitie’s recently lost a case with HMRC over their Blissful biscuit, which is filled with chocolate, however there is an element of the chocolate that can be seen on the surface which therefore means it is covered!

What about a Christmas biscuit tin?

To further confuse matters, a biscuit tin would usually have normal & chocolate covered biscuits which would lead to a mix supply (you would split that vat rates between 0% & 20%)

However if the chocolate covered biscuits do not exceed 15% of the net weight of the tin, the whole supply is zero rated.

Popcorn – A DIY Delight

VAT rules state that any food that is puffed up is a luxury and would therefore be standard rated.

So any popcorn that you buy that is already made would have VAT charged on it.

However, if you need to cook the popcorn yourself, it is no longer a luxury and would be zero rated.

Teacakes – Classified cake

Most people are likely to know the VAT case with M&S, which was a 13 year battle to get a refund of £3.5m from HMRC!

Initially teacakes had been classed as a biscuit and would have been standard rated however HMRC recognised this as an error and it was in fact a cake and would therefore be zero rated.

Cake is zero rated as it is seen as a necessity and I’m sure many of you wouldn’t argue that chocolate cake is a necessity!

Alcohol – Standard sipping

Something that a lot of people will be consuming over the Christmas holidays.

Whilst I can’t promise that you will be avoiding a hangover this Xmas, I can at least guarantee that the vat rules on this won’t be causing any headaches.

Alcohol is always standard rated when intended to be drank.

Christmas pudding – The brandy bonus

This is seen as a cake and is therefore zero rated.

The good news here as well is that it can be covered in as much brandy as you please and it would still be zero rated!

Cheese & Crackers – Cracker Simplicity

Cheese is zero rated, the only time you would be charged VAT is if you have bought a board with the cheese, VAT is charged on the board but not the cheese.

Crackers are surprisingly nice and easy!

They are a biscuit and therefore are also zero rated.

Crisps – The potato paradox

Again another rule that doesn’t make a lot of sense…

Potato based crisps are standard rated, however if they comprised primarily of other items such as corn, then they are zero rated.

Pringles & Wotsits are standard rated but Doritos & Twiglets are zero rated.

Nuts – In a nutshell

Nuts sold in their shells are zero rated.

Nuts sold out of their shells are standard rated.

But as always, there are exceptions; Peanuts that are deshelled but not roasted or salted are still standard rated.

Almonds and nuts used for cooking are also zero rated as they are seen to be sold separately to those included as a snack!

Cranberry sauce – Zero Zing

Condiments and seasonings such as pickles and sauces commonly added to food to make it more palatable, are zero rated.

Nice and easy!

Sausage rolls – A temperature twist

A favourite in our household to have to with a Boxing Day spread.

Another with funny VAT rules!

Hot sausage rolls are standard rated, and cold sausage rolls are zero rated.

This does mean there’s no VAT on the party packs from the frozen section.

Jaffa cakes – Cake or biscuit

Another famous VAT case!

McVities won this case in their argument to class jaffa cakes as a cake and not a biscuit.

Jaffa cakes are made with similar ingredients to a cake, they have a soft base rather than a hard base and they go hard when stale rather than soft.

These were the arguments made to have jaffa cakes treated as a cake rather than a biscuit and as a result, they are zero rated, rather than being a chocolate covered biscuit which would be standard rated.

Final Word

Like it or loathe it VAT has its place with many of our day to day items.

Companies are often keen to ensure the correct VAT treatment of their products and services and ensure they are in line with VAT rules.

This can also include identifying opportunities to find savings too.

One thing is for certain, understanding the twists and turns of VAT cannot be underestimated and it’s always best to consult an expert if you have concerns or queries surrounding VAT.

If you have any concerns or queries around VAT registration or treatment then please call us on 01634 731390.