Why every Nik-Nak gets taxed, but Takis Fuego pays low

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It’s still August.

A reader writes in:

I spotted this in my local branch of Budgens earlier this week. Of course I immediately thought of you?.?.?.?can it really be possible to avoid the VAT just by printing “No VAT” in big black letters on the box?

An attached image shows a box for 21 x 55g bags of Takis Intense Nacho — a cheesy version of the modern corner-shop staple — with “NO VAT” prominently printed on its side.

Our inquisitive reader followed this up with a further question — how can Takis get away with being no-VAT, when fellow corn-based snack staples Nik-Naks get slapped with a 20 per cent levy?

The answer is stupid, and here.

For readers unfamiliar with Takis, they are a corn-based snack styled like miniature taquitos (hence the name) and coated with all manner of extremely flavourful (derogatory) coatings. Their best-known product is probably Takis Fuego, a spicy, terrifyingly-coloured version of the snack. They launched in the UK in 2021:

Takis are a product of Barcel, a subsidiary of Grupo Bimbo, the unfortunately-named Mexican food heavyweight.

For readers unfamiliar with VAT (value added tax), it’s a sales tax levied on many products and services in the UK, which FT Alphaville has written about extensively in the recent and less recent past.

Food is generally VAT exempt, but — as noted before, for instance in our Pringles coverage — many snack foods are an exception to that exception (“excepted item 5”), and carry the levy at its standard 20 per cent rate.

The details of these exemptions are spelled out in the VFOOD8000 section of HM Revenue & Customs’ VAT guidance, which includes the rather wonderful sub-page “VFOOD8160 – Excepted items: snack products: examples of the VAT liability of common snack products”, which includes the following table (in which SR means standard-rated, and ZR means zero-rated):

For any British snack enthusiast, the table above is bound to cause consternation. On a certain level, that can’t be helped: the UK’s food VAT laws are desperately (but often entertainingly) confusing. VAT law was certainly not well proofed against the future. Introducing the exceptions for snack products, HMRC’s manual says:

Many snack foods available today did not exist when the law was drafted and so do not fit the descriptions specified in the excepted item. If they are not within the terms of the item, they remain zero-rated under general item 1 of Group 1 as food.

Even without this boiler-plating, an answer is pretty easy to find: since Nik-Naks?.?.?.?

.?.?. and Takis are both corn-based, the relevant section is “VFOOD8080 – Excepted items: snack products: cereal-based products”.

Here’s what it says (our emphasis):

The second part of excepted item 5 standard-rates savoury food products obtained by the swelling of cereals or cereal products. Cereals or cereal products are edible grains such as wheat, maize or rice and the flours and pastes made from them. This part of the item applies to:

— savoury popcorn; and

— savoury snack products made from cereal flour, which are expanded or aerated during the process of manufacture: these are usually made from cereal paste which is extruded and fried.

Because the law specifies swelling, these products must be distinguished from others made from cereal products which do not involve swelling. Flat savoury snacks such as tortilla chips are in this latter category and are zero-rated. The process of manufacturing biscuits is also considered not to involve swelling, so savoury biscuits are never within excepted item 5 and are zero-rated.

It is recognised that the distinction drawn above is awkward, particularly in view of the fact that products with different liabilities are competing in the same marketplace; but it is made necessary by the continual development of new products which did not exist when the law was originally drafted.

From this, our answer is basically simple: a Takis, as essentially a rolled tortilla chip, does not undergo swelling as part of its manufacturing process. A Nik-Nak, which is extruded, is.

So now you know.

The obvious follow-up question is?.?.?.?why? Why is this all so strange?

HMRC, for their part, cannot devise a better system. As VFOOD8080 concludes:

It has so far proved impossible to draw up any potential redefinition of snack products which would avoid the existing problems in defining borderlines.

If you think you can do better, our comment box is open.

Further reading:
— Walkers’ Sensations Poppadoms vs HMRC: the Chip of Theseus
— A brief note on the fraught legal status of the Pringle crisp