Morrisons has been granted an appeal by the Upper Tribunal over a disputed VAT bill for Nakd snack bars.
The supermarket chain – which reported a 15% drop in full-year profits earlier this week – said it had overpaid £1 million in VAT to the HMRC over 18 different types of Nakd bars, which it said had been wrongly rated for tax between 2014 to 2018.
Morrisons argued against HMRC’s decision to class Nakd bars as confectionery, saying they should instead be classed as zero-rated cakes.
The problem was centered around the perceived ‘healthiness’ of the products and their marketing, due to the absence of ingredients associated with traditional confectionery like sugar cane, butter and flour.
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Morrisons was trying to reclaim the almost £1.1 million it had paid in VAT through sales of the snacks over a four year period, which the Upper Tribunal has now allowed.
Specifically, the supermarket was seeking repayment of £1m for the Nakd bars between October 2014 and July 2018, and £97,000 related to Organix bar sales in the period October 2013 to July 2017.
Although Morrisons’ position was that the bars were zero-rated, it had accounted for the standard rate VAT at 20% when sold to customers.
Judge Swami Raghavan said: “The findings on sugar content, that the ingredients were subjected to a process, were normally eaten with fingers, were held out as snacks, consumed between meals, and their names would not, we consider, be sufficient by themselves to sustain a holding the products were confectionery.
“We therefore consider, taking account that given the nature of the errors means that further detailed findings of fact may need to be made, that it is appropriate for that task to be undertaken by the First Tier Tribunal (FTT).
A Morrisons spokesperson said: “We are very pleased with the decision and see it as the first step in providing clarity in an area of VAT law that has been subject to a great deal of uncertainty and inconsistency for both retailers and manufacturers for many years.”
