November 2022 VATwatch

VAT and Food: When are Marshmallows zero-rated?!

It’s the time of year for bonfires and fireworks.

We all love toasted marshmallows to accompany sparklers and firework displays.

A recent case found that giant marshmallows can be zero VAT rated after a manufacturer argued that they are produced for toasting on a skewer, rather than for immediate consumption, so should not be classed as confectionery!

Regular sized marshmallows are still subject to 20% VAT.

HMRC Update on Option To Tax

HMRC has recently made the following text available to professional bodies:

UPDATE on Proposed Process Changes to the Option to Tax – Notification of an OTT and Charter

We recently ran a test and learn trial against the OTT Notification and OTT Charter enquiry processes with an aim of improving the process and associated productivity. An initial evaluation of the test and learn trial confirms that implementing these changes will speed up the Option to Tax process for customers.

Given the positive impact on our own performance and largely positive feedback from external stakeholders we will now operate these revised processes as our business as usual way of dealing with such requests.

It will remain the customer’s responsibility to retain and maintain their own records.

Details of both processes tested are below:

Notification (OTT)

Previously a customer notifying an Option to Tax property would be acknowledged by HMRC who would also carry out an extensive check on the notification itself.

In the new process the acknowledgement letter issued by HMRC to a person notifying an option to tax will be replaced by a receipt confirming that a notification of an Option to Tax, has been received by HMRC. HMRC will no longer carry out checks on the validity of the notification of the Option to tax as this has always been, and will continue to be, the responsibility of the opter themselves.

Should it transpire at a later stage that the notified Option to tax is indeed invalid then appropriate corrective action will be undertaken by HMRC dependent on the circumstances surrounding each case.

It is also the opter’s responsibility to maintain their own records.

Charter

Traditionally, HMRC has carried out extensive checks of our systems to find details of historic notified Options to tax. This has proved to be a time consuming and unsustainable processes.

As a result, if HMRC are unable to locate a valid notification of an Option to tax on the property in question we will request further, specific information from the Opter or an authorised representative. IF information of a valid notification of an Option to tax is found then a confirmation will be sent to the Opter or their authorised representative.

Going Forward

We will continue to review our Option to Tax and Charter processes in order to ensure a continued improvement to our operations. We will continue to keep you informed of relevant changes to our processes and charter work.

Mini Budget Reversal

You can’t have escaped the news that a number of measures announced in last month’s mini budget have now been reversed. Included in new Chancellor Jeremy Hunt’s changes was the cancellation of VAT-free shopping for overseas visitors, which had been reported in October’s VATwatch. Whilst some of the announced changes have been put on hold, this proposal seems to have been scrapped altogether.

Facemasks for Children Zero-Rated

HMRC has reviewed evidence around the continued use of facemasks and has concluded that facemasks should be considered items of clothing. Facemasks for children under 14 are therefore zero-rated. Businesses that have been selling facemasks for children as taxable at the standard rate can reclaim the VAT. 

Thank you for taking the time to read this VATwatch round-up.