Businessman in VAT row with taxman over flapjacks

THE owner of a new business that sells flapjacks and protein cake bars says he could have to close it due to a dispute over VAT.

Tim Davies, of DuelFuel Nutrition, claims that under current government guidance his energy snacks are recognised as “food” so the tax does not apply.

But HM Revenue & Customs insists that they should be classed as confectionery, meaning that 20 per cent VAT is payable on them.

Mr Davies, 55, who runs the company from his home in Reading Road, Henley, is appealing the decision and stands to lose tens of thousands of pounds if he is unsuccessful.

He said: “The guidance on these items is pretty unambiguous. Flapjacks and cakes are zero-tax rated, so when I contacted HMRC about confirming the VAT I expected just to receive a tick in the box and that would be it.

“I wrote to them setting out our position, quoting their own guidance, and we didn’t hear anything for seven months.

“Then we had three rounds of submissions where we answered questions by submitting evidence about our products, the ingredients and how they are made.”

Mr Davies has produced six bars of different flavours, three “flapjacks” and three “cakes”, one of which is a brownie. They are sold in dual packs with one of each.

They are aimed at sporting people needing a “performance” flapjack 30 minutes before they take exercise and a “recovery” cake for afterwards. All the products include a “vitamin and mineral blend” and are marketed for their performance and recovery benefits.

After being sent samples, HMRC ruled that the products should be treated as confectionery.

HMRC said that based on the taste, texture, ingredients, packaging and marketing, the cake bars were not cakes.

The addition of the vitamin and mineral blend, baking powder and wheat flour meant the flapjacks were not flapjacks, although he conceded that “the ordinary person on the street” would most likely say they were.

HMRC added: “The ‘cake bars’ are not like cake. The ingredients are not the usual cake ingredients, such as flour, eggs, sugar and milk. The main ingredients are collagen and protein isolate. They all include the vitamin and mineral blend.

“They do not look, taste or feel like cake. The texture is similar to a protein bar. When left out, the texture does not change and they do not dry out like a cake would but the consistency becomes glue-like.”

But Mr Davies said: “It feels as if HMRC are pulling the rug out from under our feet.

“They were somewhat contradictory in the response as they talk about the flapjack being the same look, appearance and taste of a flapjack so I struggle to understand how, if that’s the case, it isn’t a flapjack.”

Mr Davies came up with his business concept during the first coronavirus lockdown in 2020 when he lost all his work as a management consultant.

He said: “I was faced with either accepting my fate as being unemployed or to try to do something creative.

“I was in a gym with friends and I had a bad workout. It transpired that none of us had been fuelling properly and we didn’t understand what to eat.

“I did some research and came up with the idea for a product to give you what you needed in terms of vitamins and minerals.

“In our customer research customers found a direct link with the enjoyment of food and exercise performance and there was a strong preference for home-cooked food, so we wanted to make something that was convenient and delivers all the macro- and micronutrients needed, which is why it is a hearty flapjack.”

Mr Davies has sent his products to an independent laboratory for testing and believes the results will prove he is in the right.

In the meantime, he has appealed for an independent review of HMRC’s decision which could take up to six weeks. If he is unsuccessful, the business will be forced to close.

He said: “I wrote our business plan on the understanding and sure-foot basis we are zero-rated for VAT. Our finances just do not stack up if we become standard-rated as it becomes not economically viable and our margins become negative.

“We would have to increase our prices, which would take us out of the realm of viability. We did quite a lot of research to make sure we offer value for money. If you put VAT on top of that it will increase prices by 20 per cent and that makes it unaffordable for many people.”

Mr Davies had written to Henley MP John Howell and four ministers, including Chancellor Rishi Sunak, to highlight his case.

He said: “It remains to be seen what support Mr Howell and the four ministers provide to a new Henley company that is trying to make a modest contribution to the country’s economic recovery.”

An HMRC spokeswoman said: “The VAT rules require a business to charge VAT at the standard rate of 20 per cent on the sale of an item of confectionery unless it is a cake or a biscuit not covered in chocolate.

“For these purposes, confectionery includes any item of sweetened prepared food which is normally eaten with the fingers.

“A product is a cake or a biscuit if it has sufficient characteristics to be so categorised.

“HMRC accepts that a traditional flapjack can be treated as a cake and zero-rated. However, a product that contains different ingredients and, for example, has been developed as a sports nutrition product, falls to be confectionery and is standard rated.

“Our policy is explained in guidance at VFOOD6200.”