WM Morrison Supermarkets PLC v The Commissioners for HMRC

In a multi-factorial statutory classification exercise, appellate caution applies to challenges concerning weight, evaluation and matters of degree. It does not require perversity where the first-instance tribunal has wrongly treated a legally relevant factor as irrelevant or has omitted it.

For VAT classification as “confectionery”, the ordinary meaning and the informed ordinary person’s view require assessment of all relevant product characteristics. Healthiness, perceived healthiness, health-related marketing and comparison with ingredients traditionally associated with confectionery may be relevant, although none is necessarily determinative. A factor not listed in the statutory deeming provision is not thereby excluded or presumed to have little weight.

The appellant sold Organix and Nakd bars and accounted for output VAT at the standard rate. It sought repayment on the basis that the bars were zero-rated food under Group 1 of Schedule 8 to the Value Added Tax Act 1994. The First-tier Tribunal held that the products were “confectionery” within Item 2 of Group 1 and dismissed the claims.

With permission, the appellant appealed on the grounds that the FTT had wrongly excluded healthiness and health-related marketing, and the absence of cane sugar, butter and flour, from its multi-factorial assessment. HMRC also argued that the products were deemed to be confectionery under Note 5 because they were inherently sweet. The central issues were whether the FTT had made errors of law and, if so, whether they were material.

1. Appeal allowed. The FTT’s decision was set aside and the appeal was remitted to a differently constituted FTT panel.
2. Whether a product is “confectionery” involves a multi-factorial evaluation of its attributes and the view of the informed ordinary person. Appellate restraint concerns the evaluation and weight given to factors. It does not impose an additional perversity threshold where the complaint is that the tribunal identified the wrong factors or excluded a legally relevant factor. The relevance of a factor is a question of law; its probative weight on the facts is generally a question for the first-instance tribunal.
3. The FTT had misread Kalron Foods Ltd v HMRC [2007] EWHC 695 (Ch). That decision rejected an anti-junk-food policy as an interpretative gloss on the VAT legislation. It did not establish that healthiness was irrelevant to the ordinary-meaning assessment. Healthiness, perceived healthiness and health-related marketing could therefore be considered.
4. The FTT had also misread HMRC v Premier Foods Ltd [2007] EWHC 3134 (Ch). That decision did not determine that the fruit bars in question were confectionery. It held only that cooking and added sweetener were not essential characteristics. The absence of traditional ingredients could remain relevant, although it was not an essential characteristic.
5. The materiality test in Degorce v HMRC [2017] EWCA Civ 1427 applied. The errors might have affected the outcome. The assessment was qualitative, not a count of factors, and the omitted matters could colour the evaluation of taste, packaging, treat-like presentation and similarity to traditional confectionery.
6. The matter was remitted with directions preserving specified unchallenged findings of fact, permitting limited further fact-finding and taste testing, and requiring a fresh evaluation. The unresolved quantum issue was left to the FTT.

• First-tier Tribunal (Tax Chamber): In WM Morrison Supermarkets PLC v HMRC [2021] UKFTT 106 (TC), the FTT held that the Organix and Nakd bars were confectionery and standard-rated.
• Upper Tribunal (Tax and Chancery Chamber): The appeal was allowed, the FTT decision was set aside, and the matter was remitted to a differently constituted FTT panel.