VAT liabilities

HM Revenue & Customs (HMRC) has recently published a brief on the VAT liability of bicarbonate of soda stating that it qualifies as a zero-rated food ingredient, even though the Revenue had previously argued that it should be standard-rated as a ‘product with multiple uses’.

The change came following a First-tier Tribunal (FTT) case regarding Phoenix Food Ltd. The issue was whether the product, sold in 200g tubs in supermarkets, qualified as zero-rated food or was subject to the standard rate of VAT.

Phoenix’s labelling stated that the food grade bicarbonate of soda was a leavening agent in baking, although it could also be used in non-culinary ways, such as a cleaner or mild abrasive.

Moreover, because of the multiple usage of the product, HMRC previously argued that it should be standard-rated and said it was only added to food for “technological purposes” as a leavening agent, not for its nutritional value.

Unsurprisingly Phoenix disagreed, saying that the marketing of the product indicated it was a food ingredient and contained sodium, which is an essential nutrient.

The FTT agreed that the supplies of bicarbonate of soda in this case qualified as a zero-rated food ingredient, although it accepted that ‘bicarb’ has many uses. As the Tribunal pointed out, based on the packaging and placements by the supermarkets in their baking sections, these supplies were primarily used as a baking ingredient.

HMRC accepted the ruling, as the product satisfies certain conditions that make it zero-rated, such as that it has some measurable nutritional content and is used predominantly for baking.

In the brief, HMRC said it considers a range of factors when considering how a product is held out for sale. These are how the product is labelled, packaged, displayed, invoiced, advertised and marketed.

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