Ever wondered why cooking chocolate costs less than normal chocolate?

It isn’t anything to do with the quality of the chocolate and everything to do with what items are liable for VAT.

Relevant VAT rules

In order to see why the court ruled in favour of HMRC, in this case, you need to know the basic VAT rules that apply.

  • Chocolate and chocolate bars are considered confectionary (along with other items you get in the sweets aisle)
  • Confectionary is liable for standard rate VAT, currently 20%
  • Cakes and individual ingredients for making cakes are zero rated for VAT

HMRC versus Kinnerton

Kinnerton Confectionary Ltd make a range of chocolate items aimed at the children’s confectionary market. All considered confectionary, all VAT standard rated, as you would expect. They then brought out a chocolate bar that was for baking. As ingredients for baking are zero rated, they didn’t pay VAT on the sales of these bars. Seems cut and dry at this point.

Unfortunately for them, HMRC challenged them on the classification of this chocolate bar. They argued that it was not clearly labelled as cooking chocolate and it was sold next to non-cooking, ordinary confectionary and not other baking goods.

The Ruling

It seems to have come down to having the right packaging, as neither cocoa percentage nor recipe have had any bearing on the outcome of the tribunal. The main reason for them finding in HMRC’s favour is the chocolate bar’s marketing – both absence of clear ‘for baking’ purpose on the wrapper and its placement in stores. As Kinnerton make ‘free from’ products, they are usually placed in that section of a supermarket alongside other confectionary. Also the company’s name ‘Kinnerton Confectionary Ltd’ was seen as an issue of possible confusion for the consumer.

Despite presenting comparisons with other manufacturers’ chocolate bars and even with the knowledge that the company have no control over where their product sits within a supermarket, the judge ruled for HMRC. Kinnerton Confectionary now owe HMRC £258,000.

The part of the report about the packaging is self explanatory and interesting to read in full:

  1. “Ms Vicary distinguished the two, saying that the word “for” used by Menier describes the purpose of the chocolate: it is “for” cakes and desserts. In contrast, the wording on the Bar stressed taste, not purpose. She also pointed out that Green & Black’s, Dr Oetker and Lindt bars all contain clear messages that they are, respectively, “for cooking”, “fine cooks’ chocolate”, “cooking” or “speciality cooking chocolate”. Kinnerton does not include the words “cooking” or “cook” anywhere on the packaging. Instead, it contains a single mention of “cakes and desserts” which emphasises the taste of the chocolate.
  2. I agree with Ms Vicary (a) that the wording on the Bar stresses the taste of the chocolate when used for cooking; (b) omits any direct reference to “cook” or “cooking”, and therefore (c) does not expressly state that the Bar is cooking chocolate.
  3. The back of the packaging makes no reference at all to cooking, either explicitly or by inference. Ms Vicary contrasted this with Dr Oetker’s chocolate, where the wrapper describes the historic roots of that business as a producer of baking products, and also explains how to cook with chocolate. The Bar not only has no recipes (unlike Green & Black’s, which uses the inside of the wrapper for that purpose), but also has no information about where recipes can be obtained (unlike both Dr Oetker and Green & Black’s).
  4. It is clear that there is no holding out via the back of the wrapper that the Bar is cooking chocolate. The written message instead emphasises that the Bar is (a) allergen free and (b) has “been designed to be acceptable to both children and adult tastes.”

The detail contained in the evidence for this tribunal, produced by both sides, is staggering. Who would have thought that identifying the purpose of a chocolate bar could be so difficult, or so expensive? Essentially, identical bars of chocolate in two differently worded wrappers could fall into two different VAT rate categories and therefore have two different prices. Don’t know about you, I suddenly need to go and buy a chocolate bar…