Sweet victory for Ferrero: Nutella Biscuits escape the VAT trap

In a ruling that proves even biscuits can baffle Britain’s tax code, Ferrero UK has secured victory in one of the most intriguing food-VAT cases in recent memory. The First‑tier Tax Tribunal found that the product known as Nutella Biscuits is not “partly covered with chocolate or a similar product”, and accordingly remains zero-rated for VAT in the UK.  

The dispute began when HM Revenue & Customs (HMRC) argued that the biscuits – comprising a biscuit cup base, a layer of Nutella filling, a “ring” of chocolate-like substance, and a biscuit disc top – should be taxable at the standard 20% VAT rate because they were partly chocolate-covered. Ferrero countered that the visible chocolate-like ring was enclosed between biscuit layers, and thus did not form an external covering. The tribunal accepted Ferrero’s argument.  

Tribunal Takes the Everyday View

Presiding judges emphasised an “everyday language and context” approach: ordinary meaning of “partly” and “covered” under the relevant VAT legislation.   They concluded that for an item to be “partly covered with chocolate”, the chocolate (or similar substance) must form part of the outer surface of the finished product, and be more than a de minimis amount. Because the Nutella ring sat entirely inside and the external layers were biscuit only, the criteria for standard-rated confectionery were not met.  

In effect, the tribunal determined that the product is a biscuit with an internal filling, not a biscuit that is “coated” or “covered” in chocolate. As legal commentary noted, the outer surface in this case consisted entirely of the biscuit cup and lid – not the chocolate ring.  

HMRC’s Case Crumbles

HMRC had issued an assessment in 2022, insisting the biscuits should be standard-rated. The tribunal’s finding that no external chocolate covering existed meant that the assessment was incorrect. While HMRC has reportedly chosen not to appeal the decision, it emphasises that the ruling is specific to the facts rather than establishing a broad precedent.  

A Broader Reflection on Food VAT Complexity

The case highlights just how outdated and convoluted the UK’s food-VAT legislation remains. The distinction between “basic food” and “luxury/standard-rated food” is often less about nutrition and more about product design and composition. Analysts note that minor manufacturing details — internal vs. external chocolate, visible vs. invisible layers — can determine whether a product is zero-rated or subject to the full VAT rate.  

For food manufacturers and tax advisers alike, it’s a reminder that VAT classification demands scrutiny of product architecture, not just branding or consumer perception.

From a Business Perspective: Clarity — but Only Just

For Ferrero, the ruling brings welcome clarity: the company can continue selling Nutella Biscuits under zero-rating for VAT, preserving margin and consumer price sensitivity. For others in the snack space, the decision serves as a cautionary tale: small structural changes — e.g., shifting a chocolate layer to the surface — could flip VAT status overnight. As commentary suggests, this decision may act as an informal benchmark for future “hybrid” snack items.  

Conclusion: Sweet Relief, But A Bitter After-taste of Uncertainty

Ferrero’s triumph offers a sweet victory for common sense, yet it underscores a deeper issue: the UK’s food VAT framework remains a relic of another era, warped by technicalities. While Nutella Biscuits escape the 20% VAT trap today, countless other products will continue to inhabit the sticky middle ground between “basic” and “luxury”. For the sector, the challenge remains not only in product innovation but also in navigating a tax system that struggles to keep pace.