VAT – It’s bananas

We’re all aware of the famous case that was heard in 1991 by a VAT Tribunal on whether Jaffa Cakes were cake or biscuit (as discussed last month it’s a cake). Now, our clients love VAT, because we deal with it, but you know it’s still an issue when the Upper Tax Tribunal is dealing with a case on whether the strawberry and banana flavours of Nesquik should be zero or standard rated.

You’re probably saying, ‘but what about the chocolate flavour?’, which, due to the cocoa butter content, is zero-rated for VAT under EU VAT Directive rules and the UK VAT Act. HMRC won this case on the basis that the strawberry and banana flavours were not, as Nestle had argued, critical to the creation of a new beverage.

It’s still milk. Flavoured yes, but different to adding sugar to coffee due to its singular use. You can do a lot with sugar. So next time you’re in the supermarket and look at the range of Nesquik on the shelf you can be ‘glad’ that we now know why the chocolate flavour is zero-rated and its brethren not.

Which brings us back to Jaffa Cakes, which are cakes, not biscuits. If you’re worried about whether your business should be registered for VAT, and whether you should be charging it, you should get in touch with an accountant who likes tax.