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McVitie's crumble under pressure in the zero-rate debate for Blissfuls biscuits

Posted on: November 8th 2023 · read

Close-up of biscuits

The most recent development in the seemingly never-ending controversy on confectionery leaves McVitie's Blissfuls biscuits subject to VAT at the standard rate.

What is the issue?

Although food is generally zero rated for VAT purposes under Schedule 8 Group 1 of the VAT Act 1994, there are some exceptions. One of the most notorious is biscuits, which can only qualify for zero-rating if they are not wholly or partly covered with chocolate (or a similar product). This means that a plain Digestive biscuit is zero-rated, but the chocolate alternative is standard-rated for VAT.

United Biscuits (UK) Ltd, trading as McVitie's, took its case to the First Tier VAT tribunal, arguing that although the Blissful biscuit is filled with chocolate, it is not covered by chocolate, and should therefore fall within the zero-rated group.

The tribunal described the biscuit as: "a biscuit cup with a flat bottom base [...]. It has a layer of chocolate hazelnut, a layer of chocolate and a McVitie’s logo made of biscuit on top, the circumference of which is smaller than the base."

In McVitie's view, the biscuit is covered by another biscuit (which works as a lid), not a chocolate coating. The layered structure is closer to that of a sandwich biscuit, similar to the zero-rated Bourbon, as opposed to a chocolate-dipped biscuit, like the standard-rated chocolate Digestive. 

What's the result?

The tribunal dismissed the appeal, arguing two main points:

  1. The test outlined in the legislation does not question whether the biscuit is a 'sandwich' biscuit, but whether the biscuit itself is covered wholly or partly with chocolate or a product similar in taste and appearance. The Blissful’s sandwich-like structure is irrelevant.
  2. The lid of the biscuit does not cover the entirety of the biscuit, as only 80% of the chocolate layer is covered by the biscuit lid. For the remaining 20%, a chocolate covering is clear. Remember that in the legislation, the biscuit need only be partly covered by chocolate to lose its zero-rated status.

The case was closed with a HMRC win: the Blissful biscuit is partly covered by chocolate and thus falls under Group 1's exceptions and is not zero-rated.

What happens now?

At £2.75 for a 172g packet, McVitie's must now decide whether to increase prices by 20% or absorb the VAT cost. It's a question of leaving customers disgruntled or letting profits take the hit.

The overarching response to this case is one of frustration. For many, continuing to contribute to the wealth of biscuit-related VAT case law is an unnecessary use of resource, and arguably, if you’ll pardon the pun, truly taking the biscuit!

You can find out more about the Blissfuls case here.

How can MHA help?

The Blissfuls case emphasises the complexity and ever-changing nature of this area of VAT. 

Businesses selling any item of confectionery, be it cakes or biscuits, may require review to confirm the VAT liability. 

To book your free consultation with our specialists, please contact us by using the button below. 

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