Schofield Sweeney secures major decision on VAT case

Partner Richard Stockdale and the litigation team at Schofield Sweeney have successfully won a complex case on the VAT rating of baking soda on behalf of Phoenix Foods.

HM Revenue and Customs (HMRC) brought a claim against Phoenix Foods, which is a part of the Premier Foods Group, for £305,000 in VAT due to the classification of baking soda as a food not used for human consumption.

Phoenix Foods contested this classification and sought legal advice from Stockdale of Schofield Sweeney.

The ruling means that Phoenix Foods has avoided a £305,000 VAT bill. The outcome will be of huge interest to those in the food retail, wholesale and manufacturing industry, according to Schofield Sweeney.

The firm explained: “The decision avoids HMRC making retrospective claims worth many millions of pounds against companies in the food industry in relation to supplies over the last six years. Although the case concerned bicarbonate of soda it applies equally to all other products (whether ingredients or foods in their own right) which are properly classed, on a common sense test, as being food of a kind used for human consumption.”

HMRC made the claim in the belief that baking soda was not a “food of a kind used for human consumption” that qualifies for a zero rate of VAT (under the VAT Act), and so believed that Phoenix Foods was required to pay VAT and had accrued liabilities of £305,000.

The decision was made in January following a two-day hearing in October 2017.

The judge ruled that the supply of baking soda by Phoenix, in a form that was primarily intended as a baking ingredient, was a supply of “food of a kind used for human consumption” and therefore fell within Item 1, Group 1, Schedule 8 of the VAT Act and so qualifies for zero rated for VAT.

Stockdale said: “This was a very significant test case for the food industry raising issues as to what is to be regarded as food (rather than an additive) and also issues regarding HMRC’s approach in rating products differently according to their intended use.”