Is the thing the thing we think that the thing really is?
It has always amused me when tax cases arise deciding on how to categorise a certain product or good. These cases often lead to large numbers of highly paid lawyers battling it out, with huge sums of money at stake, over what would appear completely trivial to most of us. However, some of these have real life relevance to many OMBs, so it is definitely worth asking yourself if the tax treatment of the things that you are doing is correct.
Many people will be familiar with the Jaffa Cake case, where HMRC tried to argue that Jaffa Cakes were chocolate covered biscuits (which are standard rated for VAT) rather than cakes (which are zero rated for VAT). HMRC ultimately lost the case, and the judgement had some interesting comments around the packaging being ‘uncakelike’ and the product being usually located in supermarkets by biscuits rather than cakes, but ultimately as the Jaffa Cake was ‘moist to start with, and then became hard and crisp when stale’, it was decided this most definitely was cakelike and Jaffa Cakes were indeed cakes.
Another common example is Greggs and the ‘Pasty Tax’. Greggs argue that their products are simply warm because they happen to be freshly baked (and hence can be zero rated for VAT) rather than they are intentionally cooked to be eaten hot, and this is the reason they cannot be kept warm or reheated as this would make them VATable.
A few other examples from the EU, which at least for now shares much of its VAT law with UK, is an Irish ruling stating that Subway do not use ‘bread’ as the sugar content of their white bread makes it more like confectionary for VAT purposes, and an EU ruling that an aphrodisiac sold by an adult shop in the Netherlands should not be treated as food as “these are consumed, not to provide the body with nutrients, but rather to stimulate, and thus, while they may affect certain bodily functions, they do not have a nutritional purpose”.
One question most business owners should definitely ask themselves is whether their company vehicle is a car or a van. There is currently a potentially huge case rumbling on between HMRC and Coca Cola relating to whether Crew Cab VW Transporters and Vauxhall Vivaros are vans or cars. The main issue here is that despite their appearance which many laymen would agree would make them a van, the tax law for income tax is written in such a way that all vehicles are cars unless (amongst some other very niche exceptions) they are ‘a vehicle of a construction primarily suited for the conveyance of goods or burden of any description’. The Court of Appeal has agreed with HMRC’s interpretation that such vehicles are (narrowly) not primarily suited for goods or burden. Currently we await to see if Coca Cola will launch an appeal to the Supreme Court, but this judgement has huge implications for the many OMBs operating similar vehicles as company cars and action should certainly be taken swiftly for businesses which do operate these vehicles. Car dealerships and manufacturers have long confidently marketed and sold vehicles as ‘commercial’ without really appreciating the fine detail of the law, and many clients are left disappointed when I explain the risks of these vehicles despite the positive marketing spin.
If you have any doubts over any tax treatment of your services, or if you are unsure about your company vehicles, then please do get in touch with Ben Powell on 01905 794 504 or email ben.powell@ballardsllp.com.
