The Commissioners for HMRC v Innovative Bites Limited

Under the Value Added Tax Act 1994, a statutory note stating that confectionery includes a specified class of product is ordinarily conclusive. A product falling within the description of sweetened prepared food normally eaten with the fingers is confectionery for VAT purposes, subject only to absurdity or an obvious mismatch with statutory purpose. The note is not a rebuttable presumption and does not invite a further multi-factorial assessment. It is non-exhaustive, so products may also be confectionery under the ordinary meaning of that term. Whether the statutory description is met is a question of fact, and the taxpayer bears the burden of proving that the product is not normally eaten with the fingers.

HMRC appealed against the Upper Tribunal’s dismissal of its appeal from the First-tier Tribunal. The First-tier Tribunal had held that Mega Marshmallows were not confectionery and were therefore zero-rated as food for human consumption: [2022] UKFTT 00352 (TC). The Upper Tribunal upheld that result, while accepting that the First-tier Tribunal had erred in its approach to Note (5) to Group 1 of Schedule 8: [2024] UKUT 00095 (TCC). The central issues were whether Note (5) created a conclusive statutory inclusion and whether the First-tier Tribunal had made a material error by failing expressly to decide whether the product was normally eaten with the fingers.

1. Appeal allowed. The Upper Tribunal was wrong to treat Note (5) as akin to a rebuttable presumption and to permit other factors to displace the statutory description.
2. Section 96(9) requires Schedule 8 to be interpreted in accordance with its notes. Note (5) is an inclusive definition. Subject to absurdity, or an obvious indication that the statutory purpose was not intended to apply, a product described as sweetened prepared food normally eaten with the fingers is confectionery for Item 2. It is not necessary or appropriate to conduct a further multi-factorial assessment. This accords with the reasoning on inclusive definitions in Dilworth v Commissioner of Stamps [1899] AC 99 and Thomas v Marshall [1953] AC 543.
3. The statutory description is subject to a narrow limitation. A product falling within the words literally may nevertheless be outside Item 2 where that result would be absurd or plainly contrary to the purpose of the legislation. Cooked sweet chilli flavoured chicken skewers were an example. The ejusdem generis principle did not confine the tailpiece to products of the same genus as the listed examples.
4. Lord Justice Males added that Note (5) is non-exhaustive. HMRC may succeed either by establishing that a product is confectionery in the ordinary sense or by establishing that it falls within Note (5).
5. The issue whether Mega Marshmallows were normally eaten with the fingers was factual. The taxpayer bore the burden of proving that they were not. The First-tier Tribunal had made no finding on that issue. The matter was remitted to a differently constituted First-tier Tribunal, on the existing written evidence, with the possibility of cross-examination and re-examination of relevant witnesses.

• Court of Appeal (Civil Division) allowed HMRC’s appeal and remitted the factual question concerning Note (5).
• Upper Tribunal (Tax and Chancery Chamber) dismissed HMRC’s appeal from the First-tier Tribunal: [2024] UKUT 00095 (TCC).
• First-tier Tribunal (Tax Chamber) allowed the taxpayer’s appeal against the VAT assessment: [2022] UKFTT 00352 (TC).