Cakes or confectionery? that’s the question that is irking a Henley businessman who’s protested that he could be forced to close his business due to tax changes.
Tim Davies is the co-founder of Duel Fuel which makes brownies, flapjacks and cakes as a gym and sports nutrition snack.
But recently, Mr Davies found out that his products have fallen foul of a tax redesignation.
So far, Duel Fuel bars have been classed as cakes, which are VAT exempt.
However, now Her Majesty’s Revenue and Customs (HMRC) is demanding that Duel Fuel charges VAT, as it has ruled that the products are actually confectionery.
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Mr Davies has argued the redesignation would force him to close up and end fledgling careers for staff from Reading and Caversham.
He said: “The rule change means we have to include VAT which will put us out of business.
“I’ve got an 18 year-old employee from Caversham who I employed in a kickstarter programme, but I’d have to make him redundant.
“He’s doing a great job. He started three months ago and he’s really growing in himself. I would make him a full time job offer, but because of this we won’t be a viable business anymore.
“It feels as if HMRC are pulling the rug out from under our feet.
“HMRC have acknowledged we are using the exact ingredients used to make flapjacks and have confirmed our flapjacks look, taste and feel like flapjacks, so we cannot understand why they are saying they are not flapjacks.
“They are also saying our brownies and cakes are not brownies and cakes. The entire situation would be hilarious if it wasn’t so serious.”
He added that he is willing to take HMRC to a tribunal if the decision is not reversed – but even that would not be enough to save Duel Fuel.
A spokesperson for HMRC explained the reason for difference in taxes between cakes and confectionery.
The spokesperson 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.
“HMRC doesn’t comment on specific cases.”
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Mr Davies requested a review of the decision, which is being undertaken.
He has written to John Howell, the MP for Henley and senior government ministers, Rishi Sunak, Paul Scully and Michael Gove (all Conservatives) explaining his predicament, and arranged for the products to be independently assessed in an effort to confirm their status as cakes and flapjacks.
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