Salted nuts are standard rated, but packets of nuts which are still in their shells are VAT free.
Tag Archives: vat-zero-rate
VAT and charities – updated guidance
HMRC has updated its guidance on How VAT affects charities. This includes details of a new relief from 1 April 2026 for VAT registered businesses donating goods to a charity (Section 5.5).
A VAT-registered business can zero-rate the donation of goods to a charity or its trading subsidiary provided that the goods are to be offered for sale.
From 1 April 2026, businesses do not have to account for VAT when they donate goods to a charity for:
- onward donation to an individual, another charity or another organisation
- use in the charity’s non-business activities
Goods may be donated without incurring a VAT charge when:
- the goods are eligible
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A business donates goods for an eligible use
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the goods are donated to a charity which is either registered with the Charity Commission, corresponding regulator (where required) or registered with HMRC for charity tax purposes
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The donating business holds evidence that eligible goods have been donated to an eligible charity
Before 1 April 2026 businesses were required to account for VAT on a deemed supply when goods forming part of their assets were donated to a charity and input tax had originally been recovered on their purchase.
More on VAT and charities here.
VAT: New, important HMRC guidance for zero-rating exports
HMRC has updated its Notice 703 which explains the conditions for VAT zero-rating exports of goods. It is crucial for a business to have the correct documentation to evidence goods physically moving out of the UK.
Information on official evidence has been updated in paragraphs 6.2, 7.1 and 7.2 as follows:
- Para 6.2 Official evidence
Official evidence is an export declaration for the goods submitted to the Customs Declaration Service which has generated a departure confirmation. You will need the Movement Reference Number (MRN) or Declaration Unique Consignment Reference (DUCR) of the declaration.
- Para 7.1 Air and sea freight
- If you are using commercial transport documents as proof of export for goods exported outside the UK or EU by:
- air — you must obtain and retain an authenticated basic master airway bill or house air waybill endorsed with the flight prefix and number, and the date and place of departure
- sea — you must keep one of the copies of the bill of lading or sea waybill along with a note of the export declaration Movement Reference Number (MRN) or Declaration Unique Consignment Reference (DUCR) or, where a shipping company does not issue these, a certificate of shipment (certifying actual shipment) along with a note of the export MRN or DUCR, given by a responsible official of that company.
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7.2 Road freight
The international consignment note provides evidence of the identity of the contracting parties when goods are transferred by road. It is in 3 parts and is completed and signed by the sender of the goods, the carrier and the person receiving the goods. If the international consignment note is used as part of the evidence, it is important that the information is complete and all the details legible. Where the overseas customer arranges for the goods to be collected ex-works the international consignment note alone is not conclusive evidence that the goods in question have left the UK. Read paragraph 6.6 for additional evidence required when making an indirect export.
Where goods leave through a port using the Goods Vehicle Movement Service, you should retain the Goods Movement Reference of the vehicle for that journey.
Failure to produce the appropriate and accurate evidence will result in output tax being due on the relevant goods.
VAT: Composite or separate supplies – The A & D McFarlane case
Latest from the courts
Yet more on composite or separate supplies. As a background to the issue please see previous relevant cases here here here and here. This is the latest the seemingly endless and conflicting series of cases on whether certain supplies are multiple or single.
In the First-Tier Tribunal case (FTT) of Alan and Diane McFarland the appellants operated a ‘bed and breakfast’ for other people’s cattle.
The issue
The VAT issue was whether there were separate supplies:
- zero-rated supply of animal food
- exempt supply of land.
Additionally, the appellant contended that the supply of animal food was a principal supply, and everything else, including the land, was ancillary.
HMRC took the view that there was a single taxable supply of ‘animal care’ and not separate supplies of exempt stabling and zero-rated feed. It also rejected the claim that the appellant had an exclusive right of occupation over any defined area, noting that there was no agreement conferring such a right with the consequence that this could not be an exempt supply. On the zero-rated animal foodstuffs point; HMRC concluded that the supplies do not qualify for zero-rating as the food provided formed part of the overall service of animal husbandry.
Legislation
- Exemption: right over land or any licence to occupy land – The VAT Act 1994, Schedule 9, Group 1, item 1
- Zero-rating: animal feeding stuffs – The VAT Act 1994, Schedule 8, Group 1, Item 2.
Decision
The FTT found that there was a single standard rated supply of ‘looking after’ cattle. The supply made by the appellant fell squarely within the Levob (Levob Verzekeringen BV [C-41/04]) category, being so closely linked that they form, objectively, a single, indivisible economic supply, which it would be artificial to split. – HMRC notes on Levob here.
The supply was a fully integrated package of services directed towards the rearing and finishing of cattle. This included: daily mixing and provision of feed, management of water and housing, maintenance of handling facilities, statutory record‑keeping, and disease‑control obligations. These activities were inseparable in practice and indispensable for the operation of the recipient’s cattle‑finishing business. Neither the accommodation nor the feed, nor any other individual component, was offered or taken independently. There was a single price for the complete service. There was also a single invoice and a single description of the supply on the invoice. There was no indication on the invoice that both exempt and zero-rated services were being supplied.
The appellant provided a single composite service of animal rearing and management, to which all elements, including accommodation and feed, were merely constituent elements.
The Tribunal also dismissed the alternative argument of the that the supply of food was the principal supply, with all other elements, including accommodation and the wider activities being merely ancillary. The provision of food was not an aim in itself. The food could not sensibly be separated from the accommodation, handling, record-keeping and welfare-related functions that were also performed. It was, therefore, not the principal supply but an integrated component of the single composite supply.
The appeal was consequently dismissed.
Commentary
Yet another case on the perennial composite/single supply issue. This case was relatively straightforward and the outcome was no surprise. It is essential that businesses that potentially deal with agent/principal matters or make supplies at different VAT rates consider their position. Contracts, other documentation and the commercial reality need to be considered. We recommend that in such circumstances a review is carried out specifically to establish the correct VAT position .
A VAT did you know?
Crisps – spot the difference: Doritos, Monster Munch, Wotsits and poppadums are standard rated, however Pringles, Skips and Twiglets, are VAT free.
A VAT Did you know?
Kangaroo steak is sold as food in shops – food is zero-rated, but the sale of live kangaroos is standard rated.
VAT: Can Nitrous Oxide be zero-rated food? The Telamara case – no laughing matter
Latest from the courts
In the First-Tier tribunal (FTT) case of Telamara Limited the issue was whether Nitrous Oxide (N₂O) used exclusively for culinary use can be zero-rated.
Background
The appellant supplied N₂O canisters which were used as cream chargers. These were used for whipping cream and creating foams and mousses, and to infuse liquids. The relevant invoices described the product as; “Dairy products misc. Cream/beverage infusers 600 x 8g cylinder”. The chargers were not for medical use. The chargers were certified as Halal products.
Telamara’s customers were wholesalers and the units in which the chargers were sold were in boxes of 600. The packaging states that the contents of the chargers should not be inhaled. If consumed on its own N₂O is tasteless and all but imperceptible and its only effect is on the consistency of the whipped food.
The contentions
Telamara considered that the sale of the canisters should be zero-rated because they were for culinary use as food of a kind for human consumption via The VAT Act 1994, Schedule 8 VAT Act 1994, Group 1, Item 1. It was accepted that the N₂O would not be “eaten on its own” but it nevertheless was said to form an ingredient of all of the food substances into which it was incorporated by infusion or by use of the cream whipper, changing the state and nature of those foods. Furthermore, the appellant claimed unfairness because HMRC had been unable to provide clear guidance on the correct VAT treatment when the business started but HMRC subsequently became certain the supplies were standard rated.
Unsurprisingly, HMRC disagreed, formed a view that the supplies were not of food, and raised an assessment for the output tax it deemed to be due on the standard rated supplies.
Decision
The appeal was dismissed. It was found that the chargers were not food because N₂O:
- had no nutritional value
- is a food additive, not food
- does not add to the calories of food
- is odourless, colourless, and tasteless
- is a gas and therefore incapable of being either eaten or drunk
The Tribunal concluded that the gases were standard rated as they were not food of a kind used for human consumption. It concluded that no informed and broad-minded person considering whether the gases were food would conclude that they were.
Commentary
Yet another “Is it food?” case adding to a long list. The Tribunal helpfully set out (drawing from an extensive and thorough review of the very many cases which have considered the scope of zero-rating of food) the required exercise considering and weighing up the following factors to answer the question of whether something is food:
(1) Nutritional value
(2) Palatability
(3) Form of the product
(4) Manner of/directions for consumption
(5) Frequency of consumption
(6) Marketing
(7) Purpose of the product
(8) Range of uses
(9) Constituent ingredients
(10) Dictionary definition of food
Summary
Is it food? is not as a straightforward question as it may seem!
We recommend that any business which is involved in ‘food” or “food-like” products should undertake a review in light of this case. We can, of course, help with this .
A VAT Did you know?
Popcorn is standard rated. DIY popcorn – corn which is popped in a microwave is VAT free. Don’t be lazy! 🍿
A VAT Did you know?
Sweetened rice cakes are zero-rated, but savoury flavoured ones are VATable.
BUT… The problem area is salted rice cakes. Lightly salted cakes are considered to require further preparation before consumption (and are therefore zero-rated) whereas more heavily salted rice cakes do not and are standard rated. However, there is no guideline as to where this borderline falls .
VAT Notice 708: Buildings and construction updated
This Notice explains how to establish the appropriate VAT rate on building work and materials for contractors, sub-contractors and developers.
The construction of a new building and work to an existing building is normally standard rated. However, there are exceptions to this, inter alia:
- construction of new qualifying dwellings and communal residential buildings, and certain new buildings used by charities ― zero-rated
- conversion for a housing association of a non-residential building into a qualifying dwelling or communal residential building ― zero-rated
- alterations to suit the condition of people with disabilities ― zero-rated
- first time gas and electricity connections ― zero-rated
- conversion of a non-residential building into a qualifying dwelling or communal residential building ― reduced rate of VAT 5%
- renovation or alteration of empty residential premises ― reduced rate of VAT 5%
- installation of energy saving materials, grant funded heating system measures and qualifying security goods ― reduced rate of VAT 5%
- installation of mobility aids for the elderly for use in domestic accommodation ― reduced rate of VAT 5%
(These are just some examples; other works may also qualify for zero or reduced rating)
Amendments
Paragraph 7 (re: the conversion of premises to a different residential use) on reduced rated work has been amended at para 7.6 as there was uncertainty over the previous drafting.
Paragraph 8.4 has been revised to more accurately reflect the rules on the installation of building materials which are reduce rated.