Will M&S face VAT on sandwiches?

Given the complexity of VAT rules, it’s not surprising they frequently cause businesses to lock horns with HMRC. Famously there was the case that ruled Jaffa Cakes were indeed cakes and not biscuits. This meant they should be rated at nil for VAT. More recently, another court ruled that Mega Marshmallows – huge marshmallows designed for toasting over a fire – were ingredients and not confectionery. Again, this means that they are nil rated for VAT. Now it’s the turn of Marks & Spencer. The popular retailer has set experts wondering whether M&S is charging the correct VAT on ‘sandwiches’ of a certain kind.

What’s the VAT on sandwiches issue?

The current controversy focuses on a new product that has been released by M&S. This is a ‘strawberries and creme’ sandwich inspired by the ‘Japanese sando’. It comprises a filling of fresh fruit and whipped cream cheese between two slices of sweetened white bread.

The product quickly went viral after its release. However, some people have started wondering whether the retailer is going to fall foul of VAT on sandwiches rules.

What are the VAT on sandwiches rules?

Various criteria determine VAT rules on food. These aren’t always as clearcut as they could be, leading to disputes between retailers and HMRC.

HMRC defines a sandwich as having a ‘filling, often including meat, cheese, vegetables, or sauces, placed between two slices of bread, or a single slice of bread topped with these fillings’.

The problem comes when you contrast this with the following definition of confectionery by a tribunal. This says that confectionery is ‘any form of food normally eaten with the fingers and made by a cooking process, other than baking, which contains a substantial amount of sweetening matter.’

If M&S’s product is a sandwich, then no VAT is payable. On the other hand, if it is confectionery, then M&S should be charging 20% VAT on it. But which is it?

What does M&S say about its product?

What M&S says about its product doesn’t really reveal whether it believes it to be confectionery or a sandwich. In its social media posts, the company says: ‘Filled with our sweet and juicy British Red Diamond Strawberries with a thick layer of whipped cream cheese on a sweetened bread, it may look like a dessert but you’ll find this exclusive treat at home with the rest of our sandwiches!’

What happens next?

For all the speculation about VAT on sandwiches, M&S hasn’t said whether it charges VAT on its popular product. It’s quite possible that M&S already includes VAT in the price. If that’s the case, the company will simply declare and pay the VAT to HMRC.

On the other hand, if M&S doesn’t charge VAT on its ‘sandwiches’, HMRC is likely to get very interested indeed. If that happens, we may see one of those quirky tribunal cases like the ones that defined what Jaffa Cakes and Mega Marshmallows were for VAT purposes.

What’s the accountancy view?

The Institute of Chartered Accountants in England and Wales (ICAEW) has used the debate to highlight the inconsistencies in the UK’s VAT law. ICAEW Technical Manager – VAT, Ed Saltmarsh, said: ‘M&S’s sando highlights some of the key problems with VAT and helps explain why we launched the campaign How to fix VAT. The VAT system raises significant revenue for the UK but is weighed-down by complexity and has not kept pace with developments. Other countries, including Singapore, Australia and New Zealand, have shown the way. Perhaps the government should follow M&S’s lead by taking inspiration from others and rethinking its approach to a vital revenue stream.’

If nothing else, the whole VAT on sandwiches debacle has highlighted one thing. That is the importance of correctly determining a product or service’s VAT rating before putting it on sale. If you’re a THP client, our VAT Returns Service provides you with this kind of advice. Get in touch today to learn more.