Summary of Tribunal Opinion

Neutral citation: [2025] UKFTT 1202 (TC)

Case numbers / references: TC09654; Appeal reference: TC/2023/07689; TC/2024/00370

Hearing location: The City

Hearing dates: 1 and 2 July 2025

Judgment date: 18 August 2025

Members: Judge Brown; Judge Bell

Parties: Appellant (seller of the product described as "Biscuits"); Respondents (tax authority)

Representation: For the Appellant: Attorney Sloane, instructed by Company C. For the Respondents: Attorney Hellier, instructed by Company D.

Factual and Procedural Background

This appeal concerned whether a particular manufactured product described in the record as "nutella biscuits" (the Biscuits) fell within the exception for confectionery in Schedule 8 Group 1 Excepted Item 2 to the Value Added Tax Act 1994 (VATA) — specifically whether they were "biscuits... partly covered with chocolate or some product similar in taste and appearance." The Respondents issued (1) a liability ruling in a letter dated 26 August 2022 that the Biscuits were subject to VAT at the standard rate because they met the Excepted Item description; and (2) assessments to VAT for prescribed accounting periods 04/22 to 04/23 issued on 6 July 2023 and amended on 23 August 2023 charging previously undeclared output tax on sales of the Biscuits. The Decisions were upheld on review by the Respondents. The Appellant appealed to the First-tier Tribunal.

The Tribunal received an extensive documentary bundle, confidential manufacturing information, a patent (EP 3 369 321 B1) relied on by the parties, three witness statements with oral evidence and cross-examination (Witness Aragone, Witness Scarfati, Witness Culby), product samples, and a consumer survey commissioned by the Appellant involving 201 participants. The Tribunal accepted the witnesses' evidence as truthful and made specific factual findings about the product construction, dimensions and packaging. The Biscuits comprise a baked circular biscuit cup (cup), a nutella filling, a thin ring (Ring) made of a substance accepted to have the appearance and taste of a product similar to chocolate, and a biscuit disc (lid) which closes the cup. The Ring sits beneath the biscuit disc, abutting the inner edge of the biscuit cup, and the visible Ring at the top is limited to a narrow annular area (approximately 1 mm visible in plan view between cup edge and disc). The Tribunal found that the outer surface of the finished product is predominantly the two baked biscuit elements.

Legal Issues Presented

1. Whether, for the purposes of Schedule 8 Group 1 Excepted Item 2 to VATA 1994, the phrase "partly covered" (in the phrase "biscuits... partly covered with chocolate or some product similar in taste and appearance") should be interpreted to include the product at issue (the Biscuits).
2. What approach to statutory interpretation should be adopted when the statutory term "partly covered" is undefined in the VAT provisions (i.e., the role of ordinary meaning, context and consumer perspective).
3. How the correctly interpreted statutory test applies to the specific factual construction and outer surface of the Biscuits.

Arguments of the Parties

Appellant's Arguments

• The statutory term "partly covered" should be given its usual everyday meaning, informed by dictionary definitions and context; "covered" implies something laid over with a function (for example to protect or conceal) and "partly" implies a non-trivial extent.
• The Ring and filling are internal to the finished product as assembled and do not form part of the outer surface; visibility of the Ring does not, by itself, mean the biscuit is "partly covered."
• The extent of the chocolate-like substance is too small to amount to a partial covering; the product is better described and marketed as a filled biscuit (consistent with the patent and marketing), not a biscuit partly covered with chocolate.
• The Decisions relied on incorrect tests and some relevant case law was distinguishable; the Appellant invited the Tribunal not to follow the Blissfuls decision (United Biscuits case) on the grounds it erred in applying the statutory test or was distinguishable on its facts.
• The consumer survey commissioned by the Appellant supported the position that consumers view the product as filled rather than partly covered (though the Appellant accepted challenges to the survey were raised by the Respondents).

Respondents' Arguments

• The Tribunal should adopt a practical approach: an informed ordinary consumer should be able to determine whether the biscuit is partly covered; if a chocolate-like substance forms part of the outer surface of the finished product it constitutes partial covering.
• The Ring covers the nutella filling and forms part of the outer surface in the areas not covered by the biscuit disc; therefore the finished product is partly covered by a chocolate-like substance.
• Precedent and V&DT decisions support treating visible chocolate or chocolate-like substance forming part of the outer layer as partial covering (citing BN Tartelettes and other authorities).
• The Ring represents a significant proportion of the product (parties agreed it was more than de minimis / more than 1% by reference to cited cases), so the covering cannot be treated as de minimis.
• Guidance and previous tribunal decisions (including Blissfuls) indicate that even a small area of chocolate forming part of the surface can be classed as partial covering.

Table of Precedents Cited

Precedent (anonymised)	Rule or Principle Cited For	Application by the Court
Company C v Company B [2020] EWCA Civ 452	Approach to interpretation of undefined terms in VAT legislation: use usual everyday meaning in context and purpose of the rules.	The Tribunal adopted the iterative/contextual approach endorsed in this authority for interpreting "partly covered".
Company B v Company E [2023] UKSC 17	Permits use of dictionary definitions when ascertaining ordinary meaning of an undefined term in tax statutes.	Cited to support use of ordinary/dictionary meaning as part of the interpretive process.
Company B v Company F [2024] EWCA Civ 1	Iterative/context-driven interpretation and consideration of context where statutory language lacks definition.	Referenced to justify contextual and iterative interpretive method adopted by the Tribunal.
Company G v Company B [2022] EWCA Civ 1587	Adoption of contextual/iterative approach to statutory interpretation where terms lack special legal meaning.	Supported the Tribunal's iterative approach to meaning.
R (oao Ghai) v Newcastle City Council [2010] EWCA Civ 59	Principles of contextual interpretation (as applied/approved in later VAT cases).	Used as part of the chain of authority endorsing the interpretive method applied by the Tribunal.
Innocent Ltd v Company B [2010] UKFTT 516 (TC)	Use and limits of consumer surveys in VAT classification of food products.	The Tribunal noted and adopted a similar view to that in this case—that survey evidence showing public sorting is secondary to the statutory test applied by the Tribunal.
Walkers Snack Foods Ltd v Company B [2024] UKFTT 31 (TC)	Recent Tribunal approach to survey evidence and application of statutory test rather than popular sorting.	Cited to support the Tribunal's limited reliance on the consumer survey and to emphasise the Tribunal's role in applying the statutory test.
Ferrero UK v Company B [1997] STC 881	Warning against elevating factual matters to questions of principle in VAT cases; direction to take a practical view of the facts.	Relied on by the Respondents to argue for a practical, fact-based assessment from the perspective of an informed consumer.
Company B v Proctor & Gamble UK [2009] EWCA Civ 407	Practical, ordinary-informed-person perspective in deciding tax classification issues.	Used to underline that the Tribunal should take a reasonable, practical view of the facts when determining whether a product is partly covered.
BN Tartelettes (V&DT decision number MAN/02/563)	Principle that even a small amount of chocolate piped over a biscuit can result in it being partly covered.	Cited by Respondents and considered by the Tribunal when assessing whether visible chocolate-like substance forming part of the surface can amount to partial covering.
North Cheshire Foods Ltd v HMCE [1988] VDT 2709	Position that thin lines of chocolate on top of a biscuit may constitute partial covering; referenced for de minimis considerations.	The Tribunal noted the authority and the Respondents' reliance on it but also the accepted exception for de minimis chocolate in certain products (e.g., gingerbread men eyes).
United Biscuits (Blissfuls) v Company B [2023] UKFTT 864 (TC)	Application of "partly covered" concept in the context of a biscuit with a biscuit logo where a chocolate-like layer was visible.	The Tribunal discussed Blissfuls, acknowledged potential conflict on facts, and explained why on the facts of the present case it reached a different conclusion.
Greenspace (UK) Ltd v Company B [2023] EWCA Civ 106	Instruction to apply statutory language strictly, even where distinctions may be fine.	Cited by Respondents to caution the Tribunal regarding strict application of statutory words without amelioration by the Tribunal.
W M Morrison Supermarkets Plc v Company B [2024] UKFTT 181 (TC)	Reference in submissions concerning the principle of fiscal neutrality.	The case was cited in argument on fiscal neutrality but the Tribunal did not decide the appeal on that principle.

Court's Reasoning and Analysis

The Tribunal set out a three-step task: (1) determine the appropriate approach to statutory construction for an undefined statutory term in VAT legislation; (2) identify the meaning of "partly covered" in context; and (3) apply that meaning to the Biscuits.

Approach to interpretation: the Tribunal adopted the contextual, iterative approach endorsed by higher authority where undefined statutory terms should be interpreted by reference to ordinary meaning, relevant dictionary definitions and context, including the statutory scheme in which the term sits. The Tribunal accepted that it may consult dictionaries and relevant authorities but must ultimately apply the statutory test to the facts.

Meaning of "partly covered": the Tribunal rejected a purely visibility-based test and rejected importing an additional purpose-based test (i.e., that a cover must perform a protective or concealing function) as a strict requirement. Instead the Tribunal framed the test objectively: whether a chocolate or chocolate-like substance has been laid over the surface of the finished product so as to form, in whole or in part, the outer surface of that finished product when viewed sensibly by an informed consumer. The Tribunal concluded that such a covering must be more than de minimis (i.e., non-trivial in practical effect), and the ordinary-language notion of "partly covered" was to be applied by examining the outer surface of the finished product as a whole.

Role of survey evidence: the Tribunal explained that consumer survey evidence showing how members of the public sort products is of limited value when the Tribunal must apply the statutory test; it observed (and adopted) the approach taken in previous First-tier Tribunal decisions that such surveys do not displace the statutory test applied by the Tribunal.

Application to the Biscuits: the Tribunal analysed the construction of the finished product and its outer surface. Although the Ring (a chocolate-like substance) is visible in a narrow annulus between the biscuit cup and biscuit disc, the Tribunal found that the biscuit cup and biscuit disc constitute the outer surface of the finished product and that the nutella filling and the Ring sit within and between the two baked biscuit elements at a lower level than the outer surface. Therefore, the Ring did not form part of the outer surface of the finished product when viewed sensibly; it did not "cover" the biscuit even to a de minimis extent in the sense required by the statutory test. The Tribunal explicitly considered and rejected the Respondents' position that visibility alone sufficed and noted that if it had concluded the Ring formed a cover it would not have been de minimis, but on its factual findings the Ring did not form part of the outer surface.

The Tribunal also addressed the potential conflict with the Blissfuls decision: it acknowledged that the present decision may differ from that decision but explained that on the particular facts the two products were not the same and the factual differences justified the different outcome.

Holding and Implications

Holding: The Tribunal concluded that the Biscuits are NOT partly covered with chocolate or a product similar in taste and appearance for the purposes of Schedule 8 Group 1 Excepted Item 2 to VATA 1994. The appeal was allowed.

Implications:

• Direct effect on the parties: the Respondents' liability ruling and the assessments in respect of the specified accounting periods were not sustained in relation to the classification argued by the Respondents; the Appellant's position that the products are not caught by the "partly covered" exception prevailed before this Tribunal.
• Scope for precedent: the Tribunal noted that its conclusion may conflict with another First-tier Tribunal decision (Blissfuls) but emphasised that the outcome turned on the detailed facts and construction of the finished product; the judgment did not assert it was creating a novel general principle beyond its interpretive guidance (i.e., how to assess whether a chocolate-like substance forms part of the outer surface of a finished biscuit product). The Tribunal did not treat the case as establishing a binding new rule beyond the application to the facts before it.
• Fiscal neutrality: the Tribunal did not base its decision on the principle of fiscal neutrality and reached its outcome without relying on that principle; it recorded that it did not consider the decision breached fiscal neutrality given the factual distinctions identified.

Other procedural information

This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by the Tribunal not later than 56 days after this decision is sent to that party.

Notes on anonymisation

All individual and entity names in this summary have been replaced with consistent generic placeholders to preserve anonymity of persons and entities while summarising the contents of the provided opinion.