Another day, another foody VAT case comes along to entertain us. In today’s tale of woe, the alleged food in question is a gas. So, can it really qualify as a food? Telamara Ltd certainly thought so but the VAT office disagreed and gave them a £1.48 million VAT bill, so off to the Tax Tribunal (FTT) everyone went.
Background
Telamara Ltd believed that its 8-gram nitrous oxide (N₂O) canisters, marketed as ‘cream chargers’ for whipping cream, should be zero rated due to their culinary use. HMRC disagreed, reclassifying them as standard rated on the grounds that the N₂O was a gas with no nutritional value.
Telemar’s director, Nyron Parr, argued that the assessments were issued unfairly as when setting up the business, he had approached HMRC for detailed guidance on the VAT liability of the N₂O) canisters. Regrettably, despite putting his request in writing he had only been given general VAT guidance.
Years later and having been issued with a seven-figure VAT bill, he was understandably rather upset. He pointed out that HMRC had had the opportunity from the start to tell him that the product was not eligible for zero-rating and yet now deemed the product to be standard rated, many years later.
The FTT had to decide if N₂O was a food
As N₂O it is not used exclusively for culinary purposes, for example it serves as an anaesthetic commonly offered during childbirth. It is also recreationally used by some of the Gen-Z cohort as evidenced by discarded torpedo-shaped metal canisters found in local parks, which are clearly not the result of late-night al fresco baking contests. So, the starting point for the FTT was what is its normal use?
The FTT first of all ruled that the N₂O in the canisters was “of a kind used for human consumption” and went on to focus on whether it was “food”. Their decision hinged on whether an ordinary person would consider the item to be food. This deceptively simple question has provoked a number of past cases, such as edible flowers, herbal teas, algae, carbon dioxide and bicarbonate of soda, to name but a few.
What did the experts say?
HMRC’s expert witness was chartered scientist and food law specialist Mark Tallon, who explained that N₂O is recognised under EU law as food additive E942, when used as a foaming agent and propellant. In a cream whipper it dissolves into fat, then expands when released, creating light, airy whipped cream with the same taste and nutritional profile. Mr Tallon went on to explain that the gas has no calories, no protein, no fat or fibre, no nutritional content at all. He concluded N₂O was an additive, not an ingredient.
Nyron Parr, having taken detailed advice from a food scientist, argued that N₂O changed food in ways akin to bicarbonate of soda, which had been found in a previous case to be zero rated. Unfortunately for Mr Parr, the FTT chair then pointed out that bicarbonate of soda was held to be zero rated because it was sold as a core baking ingredient in supermarkets.
The Chair went on to cite the 2003 case of Gas & Chemicals Ltd, when carbon dioxide used to produce a smooth head on beer was held not to be food. He stated that he was of the opinion that nitrous oxide was similar to CO₂ in that it was not an ingredient that transforms into part of the dish, but a propellant that vanishes before you’ve finished your dessert.
The decision
The FTT concluded that N₂O is a colourless, tasteless, odourless gas and that once dispensed, cannot be “eaten or drunk” in any meaningful sense, plus it has no nutritional content whatsoever. The chair went on to say that as the gas only acts only as a propellant and does not become part of the dish in the way flour or bicarbonate of soda do.
The FTT also brushed aside Parr’s claim that the product’s halal certification bolstered his case. The FTT’s opinion was that such certificates relate to religious compliance, not VAT liability. Likewise, being “food grade” merely means safe for consumption, not that it qualifies as food for zero rating.
Crucially, the FTT highlighted that food additives may sometimes qualify for zero rating when sold as ingredients (like baking powder), but only when they are integrated into food as part of its substance. Nitrous oxide did not cross that line and the deflated taxpayer was left with a £1.48m VAT bill + costs.
Accountant’s view
It’s clear that the FTT’s Chair’s closing remarks that, “our decision hinged on whether an ordinary informed person would consider the item to be food”, was the clincher in this case. For the wider food and beverage industry, it clarifies that gases used as propellants or foaming agents are unlikely to qualify for zero rating unless they have genuine nutritional qualities or are an actual ingredient in the product.
Personally, I’m eagerly awaiting the likely Tax Tribunal case on the brandy used to pour over your Christmas pud before setting it alight. Apparently, the UK’s biggest maker of our fruity and currently zero-rated annual Christmas treat, Matthew Walker, are now including a sachet of premium brandy with their top of the range of puds, so watch this space!
