Weekly VAT News

Ferrero UK Limited: Whether biscuits were partly chocolate-covered – FTT

The First-tier Tribunal has again been asked to consider whether biscuits were “partly covered with chocolate or some product similar in taste and appearance” in order to determine the VAT liability. In this case, the biscuits were Ferrero UK Limited’s Nutella biscuits, and the First-tier Tribunal has held (decision not yet published) that the biscuits were not partly chocolate-covered, and were therefore zero-rated for VAT purposes. The FTT reviewed the components of the biscuits, comprising a biscuit cup, a Nutella filling, a ‘ring’ made from a substance similar to chocolate in taste and appearance, and a biscuit disc on the top. The FTT considered that under the statutory test, it is necessary “to examine the outer surface of the finished product as a whole … to determine whether chocolate or a similar substance has been laid over the surface of the finished product so as to thereby form the outer surface of that finished product”. Also, “to represent a partial covering the chocolate must be more than de minimis”. HMRC contended that the biscuits were partly chocolate-covered. However, taking into account the specific manufacturing process and the appliable patent, the FTT agreed with Ferrero that the biscuit’s outer surface was not covered by the ring, even to a de minimis extent; the biscuit’s outer surface consisted entirely of the biscuit cup and disc lid, and so was not partly covered by chocolate. (If the FTT had determined that the ring was a chocolate cover, they would have concluded that it was not a de minimis covering.) The FTT also acknowledged that the decision may appear contrary to that reached in United Biscuits (UK) Ltd, which concerned the VAT treatment of ‘Blissfuls’, but concluded that on the facts, the Nutella biscuits could be distinguished in their view from a VAT perspective. The FTT upheld Ferrero’s appeal against HMRC’s VAT assessments. (Contact: Katy Sweaton)

VAT and further education colleges – FTT

There have been a number of First-tier Tribunal decisions concerning VAT and further education colleges in respect of the application of the Lennartz mechanism (which at the time in question, allowed VAT recovery for costs relating to non-business activities, subject to a balancing output tax charge to reflect that use). The tribunals considering these cases were bound by the 2020 Upper Tribunal decision in Colchester Institute Corporation that government grants received by further education colleges were, for VAT purposes, consideration for an exempt supply of education/vocational training services to students, and not non-business activities. The FTT decisions were all determined on the papers without a hearing. HMRC had reserved its arguments on this issue, as it is due to be considered by the Court of Appeal in March 2026 in Colchester Institute Corporation (No. 2). (Contact: Laurie Pay)

Moving goods into Northern Ireland from Great Britain – ICS2

From 1 September 2025, road and rail carriers moving goods into Northern Ireland or the EU from Great Britain should move to the Import Control System 2 (ICS2) to submit safety and security entry summary (ENS) declarations. ICS2 replaces the Import Control System Northern Ireland (ICSNI). HMRC have indicated that they are aware of “readiness issues” with the implementation of ICS2, and are “exploring options to support those who will not be ready, by allowing extra time to prepare”. Carriers not ready for the 1 September date should continue to submit ENS declarations through ICSNI. HMRC will confirm the latest date for submission through ICSNI, but “it will be no later than the end of December 2025”. Those using the Trader Support Service (TSS) will not need to register to use ICS2 as TSS will do this. For information on ICS2, see Make an entry summary declaration using the Import Control System 2. (Contact: Donna Hemphill)

CJEU VAT case calendar

On 4 September, the CJEU will deliver its judgment in Arcomet Towercranes on VAT and transfer pricing adjustments. There will also be an Advocate General opinion in Vaniz on joint and several liability.