VAT Insights – November 2023

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A VAT summary document for busy accountants in general practice

In this November 2023 edition, I have looked to cover two most recent VAT cases recently decided:

United Biscuits (UK) Ltd                             – Jaffa Cake VAT decision……. now “McVitie’s Blissfuls”

UK Funerals On-Line Ltd                            – VAT Exemption vs Zero-Rating – which applies?

I also refer to the recent brief issued by HMRC:

RCB 7/2023                                                   – VAT treatment of drugs / medicines supplied under PGDs

United Biscuits (UK) Ltd (“UB”)

The Jaffa Cakes decision in the 90’s – was it a cake or a biscuit? Significance was, where it was a cake, it was zero-rated regardless of whether it was covered in chocolate. Were it a biscuit, where it was wholly or partly covered in chocolate, it fell to be standard-rated @ 20%. In this infamous decision, it was held that Jaffa Cakes was a cake and therefore zero-rated.

In this decision, the question that needed answering was whether McVitie’s Blissfuls were a:

  1. Biscuit with a chocolate filling with a McVitie’s biscuit lid logo; or
  2. Chocolate covered biscuit, and then partly covered with a McVitie’s biscuit lid.

UB argued that it was a zero-rated biscuit. HMRC took the opinion that it was standard-rated as it was partly covered in chocolate. The difference between the two, was VAT at 20%.

VAT legislation concerning this point, is to say the least confusing. It sets out “General items” which are zero-rated. It then sets out the “Excepted items”, which revert back to the VAT standard-rate. It then lists those “Items overriding the exceptions”.

In this case, it was held to be in item 2, to the “Excepted items” and therefore standard-rated. It was found that the biscuit was partly covered by a layer of chocolate. UB’s appeal was dismissed.

This is an interesting, yet ridiculous decision, as was the Jaffa Cake discussion all those years ago. If nothing more, it goes to highlight the complex world of VAT, when it comes to food stuffs.

In the event that you have a VAT query on the liability of a food stuff, please get in touch.

UK Funerals On-Line Ltd (“UKFO”)

This decision concerned the VAT liability of the repatriation of deceased bodies, mainly overseas. UKFO considered it to be a zero-rated supply, as being the making of arrangements for the international transport of goods – Group 8, Schedule 8 to the VAT act. Requirements included:

  • Special embalming of the body;
  • Transport in zinc-lined coffins; and
  • A “Freedom from Infection” certificate;

amongst other things.

HMRC took the opinion that the services were those in connection with the disposal of human remains and VAT exempt – Group 8, Schedule 9 to the VAT act.

Where costs were incurred, chargeable to UK VAT, is the VAT recoverable by a typical customer?

The court ruled that this resulted in the making of arrangements for the disposal of the dead i.e., VAT exempt. However, taking the view of a typical customer, it was the supply of specialist transport services i.e., VAT zero-rated.

Where a supply is both VAT exempt and zero-rated, the latter applies. Accordingly, it was entitled to recover VAT on costs incurred, as relating to a VAT zero-rated supply.

This decision goes to show where differing VAT liabilities apply to the same supply, which one is the correct one to be applied.

If you have a similar dilemma with a VAT problem, please get in touch.

RCB 7/2023

The government announced at Spring Budget 2023 that it would be extending the use of the VAT zero-rate on prescriptions to drugs and medicines supplied through patient group directions (“PGDs”).

This brief explains:

  • The change to the VAT treatment of drugs and medicines supplied through PGDs; and
  • Where businesses can find more information.

The change has no impact on drugs or medicines that already qualify for VAT zero-rating under existing provisions.

The change is effective from 9 October 2023 until 31 March 2027 and will apply to drugs and medicines supplied pursuant to a PGD during that period.
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