• A Gingerbread mixture – to be cut, baked and piped with chocolate icing eyes to create gingerbread men.
• Dried fruit and a range of roasted nuts – which will be covered and coated in white chocolate.
The above supplies are uncharted territory in their line of work and my client is looking to apply the standard rate of VAT on the quotation. Is that correct?
VAT Notice 701/40 section 1.3 states ‘The processing of someone else’s goods is a supply of services, and if that process produces new zero-rated goods it is zero-rated.
New goods are produced when a process alters the essential characteristics of the goods. Where the process does not produce new goods, or the goods are not zero-rated, then the process is standard rated. In these cases, VAT is due on the charge for providing the processing service.’
New goods are produced if there is a change in size/shape, appearance, composition, use and specifically for food items, readiness to use or eat.
The processing services above would all produce new goods. The gingerbread men and the chocolate dip snack are ordinarily zero-rated food products, see VFOOD6240, and are not deemed to be confectionary. Your client should be charging the zero rate of VAT to their customer.
White chocolate coated raisins and peanuts are a standard rated confectionary item, see VAT Notice 701/14 sec 3.6, therefore the processing services will also be at the standard rated of 20%.
This will be a mixed supply of zero and standard rated services and your client will need use a fair and reasonable method to apportion the output tax between the liabilities.
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