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You are here: BAILII >> Databases >> First-tier Tribunal (Tax) >> Skinner Ltd v Revenue & Customs [2012] UKFTT 525 (TC) (16 August 2012) URL: http://www.bailii.org/uk/cases/UKFTT/TC/2012/TC02201.html Cite as: [2012] UKFTT 525 (TC) |
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[2012] UKFTT 525 (TC)
TC02201
Appeal number: TC/2010/1082
VAT – whether appellant’s dog food was pet food – meaning of “meal” in expression “biscuits and meal” in zero rating schedule – appeal allowed in part
FIRST-TIER TRIBUNAL
TAX CHAMBER
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ROGER SKINNER LIMITED |
Appellant |
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- and - |
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THE COMMISSIONERS FOR HER MAJESTY’S |
Respondents |
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REVENUE & CUSTOMS |
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TRIBUNAL: |
JUDGE BARBARA MOSEDALE |
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NIGEL COLLARD |
Sitting in public at Bedford Square , London on 18-20 April and 14 May 2012
Mr Michael Conlon QC and Ms Anne Redston, Counsel, for the Appellant
Ms Eleni Mitrophanous, Counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents
© CROWN COPYRIGHT 2012
DECISION
1. The appellant lodged voluntary disclosures totalling nearly £7million reclaiming output tax paid on sales of certain dog foods in the period 1 January 1980 to 31 January 2009. HMRC refused these claims on 21 September 2009 and upheld this refusal on review on 17 December 2009. The appellant appealed the review decision.
3. The quantum of the claim has been agreed by the parties and we are not asked to address it, and in the event that our ruling is that some but not all the supplies in respect of the claim products were zero rated, the parties indicated that they expect to be able to reach agreement on quantum. In so far as there is an issue as to whether and to the extent that the appellant’s voluntary disclosure was made in time (the protective claim), we are not asked to decide the matter. Similarly we are not asked to rule on (should the appellant succeed in principle), HMRC’s liability to compound interest as that issue is also stayed behind other cases. Nor are we asked to address any question of unjust enrichment.
5. From the evidence we heard and saw, we find the facts to be as follows.
6. The appellant is a company set up over some 30 years ago to take over the running of a very long established business. The family of the appellant’s chairman, Mr Skinner, have been millers at the company’s site in Suffolk for some two hundred years. In the last century, the business had evolved into being a manufacturer of farm animal feeds and dog biscuits, as well as producing flour.
7. Mr Skinner first joined the business (while it was still a partnership) in 1964. In 1971 the partnership manufactured its first dog food under the brand name of its customer, called Linacre. Linacre’s customers were hill farmers with sheep dogs or breeders and trainers of working dogs. Linacre failed in 1972. But Mr Skinner was inspired to invent and manufacture a better quality, more digestible dog food. Basically, Mr Skinner’s main insight was that the cereals used should be first cooked (to make them more digestible) before being mixed with other ingredients (meat and bone meal, fish, fat and vitamin and mineral supplements) and then passed through a die used to produce cattle food. He also made other changes to the recipe to produce what he considered to be a unique dog food in 1970s.
9. From 1 June 1977, the partnership sold its dog food under its own label as “Skinner’s Dog Food”. Shortly afterwards it added “Skinner’s Dog Meal” which was essentially the same as the Dog Food, but not passed through a die, so that the purchasers could see the various constituents of the food. It looked somewhat like a muesli. Although the term was not used at the time, we find it is now common practice to describe dog foods of this type as “muesli”.
10. At this time, the partnerhip’s sales of dog food were modest. But in around 1979 Mr Skinner decided to market the product nationally in the belief that he had identified a niche market (working dogs and, in particular, gun dogs) for which he had a product that had been locally very successful.
12. Mr Skinner was director and chairman of the appellant. He was knowledgeable and clearly very proud of his products. He was very actively involving in developing and marketing the claim products up to the time that he retired from the business in 1997 and handed over day to day running to a professional manager.
17. Mr Hart’s and Mr Skinner’s evidence was largely but not entirely consistent. One such inconsistency was whether the claim products were ever held out as suitable for pets. Mr Skinner said no and Mr Hart said otherwise. We accept Mr Hart’s evidence on this because Mr Hart explained what steps they had taken to market it as pet food (summarised in paragraphs 114-119 below), and, as mentioned above, Mr Skinner was better at remembering the business as it was in the 1970s and 1980s but we found Mr Hart’s recollection of what happened in the 1990s was much sharper.
19. Mr Livingston was Mr Skinner’s contact at BP Nutrition, a company which supplied vitamin and mineral supplements to food manufacturers. He confirmed that Mr Skinner did engage BP Nutrition to check the analysis of his dog food but Mr Livingston himself was not involved with this analysis.
20. Mr Hill. Mr Hill worked in the prison service at Dartmoor and was responsible for Dartmoor’s prison dogs. He also owned his own gun dogs and represented England in championships with his dogs. He started to use the Skinner’s claim products in 1980 and fed them to the prison dogs and his own dogs. Mr Hill thought it was an excellent product and recommended it. He bought Skinner’s dog food as agent to sell on to others, selling some 100 tonnes per year when his business was at its peak. So far as he was aware, his customers only bought the food for working dogs. His customers were not exclusively gun dog owners: he mentioned as examples one customer who bought the food for his huskies which he ran in competitions and another customer who bought it for sheepdogs.
21. We accepted him as a reliable witness.
24. The products in issue in the appeal are as follows:
Dog food |
Period of sale |
Skinner’s Dog Food |
1 January 1980 to May 2008 |
Skinner’s Dog Meal |
Entire claim period |
Skinner’s Protein 23 |
1987 to December 2002 |
Skinner’s Ruff & Ready |
1990 to date |
Own label Waveney Gold and Crane Dog Food |
1989 to approximately 2004 |
25. We were given “samples” of dog food to look at (we forebore to taste them) but with the exception of Ruff & Ready, which is still in production, the appellant was unable to produce samples of the actual claim products as they are no longer in production. Instead, we were given samples of the most similar product Mr Skinner could find. We were also given samples of comparator products.
26. Skinners Dog Food. We found this to be a cubed food of even consistency and light greyish in colour. It was fairly homogenous in appearance although tiny pieces of white and brown could be discerned evenly distributed throughout. As are all the other claim products, this was a complete food in the sense any dog fed it could subsist entirely on this food without supplementation with other foods.
28. Skinners Dog Meal. We find that this was made from basically the same ingredients as Skinners Dog Food but was not put through the pelleting process. As we have already commented, the individual ingredients could be seen so its appearance was rather like a muesli. It contained visible flakes of cereal and was mixed with a brown powder. It was a complete food.
29. Protein 23. This was an extruded dog food. Again no sample of this could be produced as production of it had ceased but we were given a sample of Field & Trial Working 23. This was a dog food still produced by the appellant and which HMRC accept is zero rated. Mr Skinner informed us it was virtually identical to Protein 23. We explain the Field & Trial range in more detail in paragraphs 93-101.
33. Ruff & Ready, was a moist muesli food for dogs. It is a more sophisticated muesli than the Skinner’s Dog Meal in that it was a mix of ingredients some of which were baked, some extruded, some cooked flaked cereals, and some pelleted proteins. By 1996 Ruff & Ready was the appellant’s best selling dog food and it remains in production today.
34. Mr Skinner’s evidence which we accept is that its ingredients were very similar to those of Field & Trial Muesli Mix for hard working dogs. Indeed his evidence was that Skinners had taken the formula for Ruff & Ready and made a few minor changes and packaged it as Field & Trial Muesli Mix.
36. Waveney Gold and Crane Dog Food: the appellant also sold dog food under two other supplier’s labels. Mr Skinner’s unchallenged evidence was that the company’s two customers were agricultural companies which sold the own label dog food to people local to them with working dogs. He said selling like this gave the appellant a larger share of the overall working dog market. In appearance, these two own label foods were most similar to Ruff & Ready. They comprised yellow flakes, brownish extruded pieces, and lighter biscuit pieces. The ingredients were (in descending order of quantity): protein pellets, flaked maize, cereal coating, flaked wheat, baked terrier meal, dried meat, extruded wheat discs, flaked peas, soya oil, vitamins & minerals.
37. The appellant also did an own label food for greyhounds called Trak Dog. HMRC accept that it should have been zero rated and it is not one of the products in respect of which a claim has been made and refused.
38. We were also given samples of other dog foods for purposes of comparison.
40. Pig finisher nuts. Mr Skinner’s evidence which we accept is that it was a pelleted compound feed for pigs and produced by a manufacturing process similar to that used for Skinner’s Dog Food. In fact, it looked very similar to the Skinner’s Dog Food except that it was clearly made with a smaller die as the pellets were smaller. Its ingredients were (in descending order of quantity): wheat, barley, wheat feed, niprosoya, molasses, limestone, dical, soyaoil, sow supplement, salt and yeast.
42. We have already said in paragraphs 7 & 10 that we accept Mr Skinner’s evidence that from the start he formulated the dog food with working dogs in mind because he saw this a niche market in which the appellant might be successful.
45. It was accepted by the appellant that all the claim products were suitable to be fed to pet dogs as well as gun dogs or other working dogs. Mr Skinner was not sure that Skinner’s Dog Food was necessarily suitable for toy dogs as the pieces were large but accepted that the packaging held it out as suitable for dogs of any size.
48. Mr Skinner’s evidence was that the food also contained high fat and carbohydrates to give working dogs a lot of energy. We do not accept that this made it more suitable for working dogs than pet dogs as, firstly, we find that the fat content varied considerably between the various claim products (between 5% and 10%) and was comparable to that in the pet food comparator product. We accept Mr Skinner’s explanation that historically (before the company had extruding machines) it was difficult to put a high fat content into the food. We had no evidence on carbohydrate content other than Mr Skinner saying it was high.
49. Secondly, Mr Skinner and Mr Hart accepted, and we find, that high energy foods can be as suitable for pet dogs as well as working dogs. Some pet dogs, taken on long walks, might use more energy than some working dogs who may have to sit quietly for long periods until given a command. Mr Skinner’s evidence, which we accept, was that a pet which did not exercise much would get fat (but not ill) if it was fed the claim products: as Mr Hart colourfully put it, the claim products were not food for Tricky Woo.
51. Mr Skinner’s evidence was that the claim products looked more like animal feed than pet food. We accept that Skinners Dog Food looked more like pig finisher nuts (a comparator product) than the extruded hoops of Omega produced from 1980s onwards. We also accept from reliance on the Monopolies and Mergers Report (mentioned in more detail below in paragraph 221) that complete dog foods were unusual in the 1970s.
52. Our overall impression is, and we find, that while the Skinners Dog Food and Skinners Dog Meal were on the whole unlike most pet dog foods available in the 1970s, when the market was dominated by canned food, over time the claim products and pet dog foods have tended to converge in appearance. While pelleted foods were and remain unusual as pet dog foods, it is clear that types of muesli-like complete dog foods are now marketed as pet foods, and types of extruded dog foods have been marketed as pet foods since around 1980.
“carefully balanced food for all dogs”
55. Dog Food, Dog Meal and Ruff & Ready also all carried the statement:
“Delicious and nutritionally complete dog food for all breeds”
56. The description on Skinner’s Protein 23 stated:
“suitable for all dogs, and particularly for those dogs with a high energy requirement, such as hunting dogs and working dogs.”
58. The packaging changed again. Mr Skinner’s and Mr Hart’s evidence on when this happened was not consistent. Mr Skinner said it happened in around 2002 and Mr Hart said in around 1998. However, taking into account that Mr Skinner ceased to be responsible for the day to day management of the company in 1997 and was somewhat vague on events in relation to the company that took place after this date, and that Mr Hart stopped working at the appellant in 2000 yet had overseen the introduction of the new bags, we prefer Mr Hart’s evidence that these new bags came into use in around 1998.
62. The various claim products were all sold mainly in 20kg bags, but all were available in a smaller size, ranging from 2.5kg, 3kg and 10kg. Mr Skinner said that the smaller sizes were really only used to be given away as samples. But while we find they were given away as samples, it is clear from Mr Hart’s evidence and the sales figures produced to us that small but significant quantities of the smaller bags were also sold. Mr Hart’s explanation is that working dog owners occasionally wanted small bags, for example, when staying away for a weekend’s shooting with their dog. We accept this explanation as it explains why sales of the small bags were very limited compared with the large bags. We also find the appellant advertised in its leaflets the availability of all sizes of the dog food.
“pet food manufacturers”
65. A Mr Peter Moxon wrote an article about Skinner’s Dog Food and Dog Meal in the Shooting Times and Country Magazine in early 1980. His article praised Skinners Dog Food. Nowhere does the text mention that the dog food is for working dogs: nevertheless the article is headed “Gundogs” and printed in a magazine intended for persons who shot game. Further, we find Mr Moxon was well-known in gundog-owing circles. He trained gundogs and wrote the “bible” for gundog trainers and competitors. The text might not mention gundogs but the intended audience of the magazine, we find, would know the author wrote the article with gundogs in mind.
“No supplementation whatever is needed to sustain healthy life for the pet or working dog”
Elsewhere it referred to dogs without distinguishing between pet or working dogs. The leaflet had line drawing reproductions of pictures of dog heads. Many breeds were featured, many of which were breeds used as working dogs, but one dog represented was clearly intended as a representation of a pet dog as it had a bow on its head.
69. The leaflet also included on the whole of one of its 7 pages a reproduction of the full text of Mr Moxon’s article referred to above together with its heading “Gundogs” in very large print. Indeed, apart from the strapline on the front page of “Fit for Life” and the name “Skinners” on the back page, this was the largest text used in the leaflet.
71. The leaflet ceased production at some point and was replaced with another, a sample of which we were not given. Mr Hart was responsible during his period of employment by the appellant for the production of this replacement leaflet and we agree with HMRC and find that it too would have had at least some representations that the products were suitable for pet dogs. This is because Mr Hart said in the hearing that in his period of employment he wished to broaden the customer base of the appellant and wanted to hold out the food as also suitable for pets. The leaflets were distributed to wholesale/retail purchasers of the appellant’s products for them to distribute to their retail customers. They were also distributed at dog shows.
73. Our finding based on this evidence is that the appellant did not use its website to actively promote Ruff & Ready and Dog Meal as pet food (because otherwise they would have been listed under the “pets” option). Nevertheless the appellant chose to place them in the “pets” category rather than the “working dogs category”. However, we accept that having worked hard to comply with HMRC’s requirements for zero rating for its Field & Trial range the appellant did not chose to list the food that was not accepted by HMRC has having zero rated status with the range that did have such status.
77. Mr Skinner’s strategy from 1980 was to advertise the appellant’s products by travelling around the UK visiting gun dog breeders and trainers, exhibiting at field trials and country shows. Sales in 1980 grew by about 700%. And by the end of the 1980s sales of the two dog foods were nearly 10 times what they were in 1980.
84. The appellant also provided food as prizes in field trials.
89. Mr Hart agreed with HMRC’s counsel that these sales reps were told to hold the food out as suitable for all dogs but he also said that the reps were told primarily to stress the products’ suitability for gundogs. We accept this evidence because Mr Hart was a reliable witness and his evidence was consistent.
93. We find that in response to HMRC’s acceptance that specifically labelled and formulated working dog food could be zero rated, and in response to competition, the appellant created a new brand range of dog food called Field & Trial. HMRC accepted from the start of its production in 1998 that this was zero rated and it is not part of the claim.
94. The appellant still manufactures dog food under the name Field & Trial.
98. HMRC pointed out that it was a slow shift from the claim products to Field & Trial. The earliest to be discontinued (Protein 23 in 2002) was discontinued only after about 5 years: the Dog Food and Dog Meal were not discontinued for at least 10 years. They pointed to an inconsistency between Mr Skinner’s evidence (which was that some conservative working dog owners stayed with the claim products which they had been using for years) while Mr Hart’s evidence was that they all switched.
99. We find that, as the figures show, there has been a gradual switch from the claim products to Field & Trial. HMRC’s case is that the slow shift to Field & Trial and the retention of Ruff & Ready, indicated that some of the consumers were not owners of working dogs. What working dog owner would buy Ruff & Ready in 2009 at the end of the claim period in its non-specific packaging when the appellant had been offering Field & Trial “for hard working dogs”, with its packaging featuring a shot gun and game bags, since 1998?
100. However, we accept what Mr Skinner said that, despite the price differential, there would have been product loyalty from the more conservative customers and this accounts for the slow switch over to the Field & Trial range. Our findings of fact in relation to the retention of Ruff & Ready are at 192-193.
103. No negative responses were received and we agreed with HMRC’s counsel that little can be read into this as a person unable to agree with the pro forma letter would simply not bother to respond. On the other hand, we do not think that anything could be read into the number of persons overall who failed to respond as we had no way of knowing whether they did not respond because they did not agree with the proposed statement or because they did not read the letter or simply did not find the time to respond to it.
107. We had evidence from Mr & Mrs Halstead who owned and trained working dogs and had used Skinner’s dog foods for over 40 years. It was apparent from their witness statements that, while they must originally have used either or both Skinner’s Dog Food and Skinner’s Dog Meal, as the only two products manufactured by Skinners 40 years ago, at some point they had swopped to the Field & Trial range, as they were under the mistaken impression it had always been called Field & Trial. Their evidence of their loyalty to the products was a testimonial to the products’ quality but tells us little of relevance to this appeal: Mr & Mrs Halstead are clearly the archetypal customer Mr Skinner had in mind but their evidence does not tell us whether or not pet owners would also buy the claim products.
111. HMRC pointed to the sales of small bags as evidence that the claim products were bought by pet owners, but we do not agree. Sales of small bags were very low in comparison to sales of the 20KG bags of the claim products and therefore we accept Mr Hart’s evidence that these were to the same persons who bought the 20KG bags but who occasionally wanted a smaller quantity for travel.
112. In conclusion, we find from evidence of the witnesses and from the fact that the introduction of the Field & Trial range spelled the demise of all bar one of the claim products, that the consumers of Skinner’s own label dog food (barring Ruff & Ready after 1998) were mainly if not entirely owners of gundogs and working dogs.
113. From Mr Skinner’s unchallenged evidence we find that the customers of the two claim products produced by the appellant under the label of agricultural companies (Waveney Gold and Crane Dog Food) were people with working dogs who lived locally to the two agricultural company customers of the appellant’s.
114. Mr Hart’s evidence was that when he joined the company the market knew that all Skinners did was food for gundogs. He was concerned that the entire business rested on a very small sub-sub-section of the market: in other words, the appellant depended on sales to gundog owners, gundogs being a sub-set of working dogs, and working dogs being only a small proportion of the dogs in the UK. He called this an inverted pyramid.
“special 20kg pack – a third more food than standard 15kg bags”
Mr Hart accepted that this was to point out the advantages of the larger bag to pet owners and said it was part of his strategy to widen the customer base.
Group 1 – Food
The supply of anything comprised in the general items below, except –
(a) ….
(b) a supply of anything comprised in any of the excepted items set out below…….
General Items
Item No
1…
2 Animal Feeding stuffs
3…..
4…..
Excepted Items
1 ….
2 ….
3 …
4 ….
5 ….
6 Pet foods, canned, packaged or prepared; packaged foods (not being pet foods) for birds other than poultry or game; and biscuits and meal for cats and dogs.
7 …”
122. The appellant’s case is that various dog foods at issue in this appeal are “animal feeding stuffs” and not within the pet food exception. HMRC agrees that the dog foods are “animal feeding stuffs” but considers that the dog foods in issue are either or both “pet foods, ….packaged or prepared” or “…meal for … dogs”. We deal with each exception in turn.
[884 b-c]“I commend the tribunal for the care which it took over this matter, but I am bound to say that, no doubt because of the submissions which were made to it by the parties, the treatment of the issue which was before it, was far more elaborate than was necessary. I do urge tribunals, when considering issue of this sort, not to be misled by authorities which are no more than authorities of fact into elevating issues of fact into questions of principle when it is not appropriate to do so on an inquiry such as this. The tribunal had to answer one question and one question only; was each of these products properly described as biscuits or not? If it had confined itself to that issue which is, and has to be, one of fact and degree, then the problems which subsequently arose would have been avoided.”
[79] “…the VAT legislation uses everyday English words, which ought to be interpreted in a sensible way according to their ordinary and natural meaning.”
127. HMRC saw the case as being fundamentally very simple. The packaging held the claim products out as suitable for all dogs. Most dogs are pets. Therefore, they say, the claim products were pet foods. They referred to Mummery LJ’s reference to the question in Proctor & Gamble being suitable for a child to answer:
[79] “The ‘made from’ question would probably be answered in a more relevant and sensible way by a child consumer of crisps than by a food scientist or culinary expert.”
130. HMRC also submitted that words conferring zero rated status should be narrowly construed on the basis that the CJEU has on many occasions ruled that exceptions to the general principle that supplies are subject to VAT should be narrowly construed. Ms Mitrophanous cited Stichting Uitvoering Financiele Acties v Staatssecretaris van Financien C-348/87 as authority for this and the principle is stated in many other CJEU decisions.
134. HMRC’s case is that pet food includes a dog food for all dogs including pets and that on the facts the claim products were dog food for all dogs.
There were views expressed in the hearing on what a “pet” was. The Oxford Dictionary has this definition:
“animal tamed and kept as favourite or treated with fondness”
135. The Tribunal in Popes Lane [1986] VATTR 221 said:
“…a pet is an animal (tamed if it was originally wild) which is kept primarily as an object of affection, in which I would include an animal kept primarily for ornament. That test would exclude animals kept primarily (a) for study or research….(b) as objects of general interest; examples are animals in a zoo, (c) for work or produce, examples are cattle, sheep dogs, police dogs, guard dogs, gun dogs, breeding animals, show animals, racing animals such as greyhounds and racing pigeons, and a pack of hounds and (d) for sale, examples are animals kept for sale by a breeder or in a pet shop.”
136. HMRC did not challenge the basis of the appellant’s claim that gundogs and other working dogs were not pets. We find as a fact on the evidence that we were given that as a general rule gun dogs are kept in kennels and not allowed in the house, they are kept to work (to retrieve game that has been shot) and at the end of their working life are likely to be (if not kept for stud) re-homed or put down. They are not kept primarily as objects of affection. As Mr Hart colourfully put it, gundogs were not given fluffy toys.
138. In any event, HMRC no longer advance the view so long advanced by them in their public notices that all dogs are pets and therefore all dog food is pet food. They agree that the appellant’s Field & Track range of dog food is properly zero rated as animal feeding stuffs. Although we had no evidence on working dogs in general, it was also not in dispute between the parties that all working dogs (including prison dogs) are not pets and so we find.
139. There was an assumption made by HMRC and Mr Hart that most dogs in the UK are pets. We take judicial notice of the fact that most dogs in the UK are pets and not working dogs.
140. It was part of the appellant’s case that their packaging on the claim products and leaflets would have referred to the product being intended for working dogs had they understood from HMRC’s guidance that food for working dogs was properly zero-rated. It was Mr Skinner’s case that, from when he started to manufacture dog food in the 1970’s when he had heard an HMRC VAT officer inform Mr Linacre (see paragraph 7) that all dog food was standard rated, until 2002 (or 1996 for racing greyhounds) that had remained HMRC’s published position. The appellant had been unaware that HMRC’s published was not in accordance with the law.
141. We find that from 1976 to 1994 HMRC’s written guidance to taxpayers (VAT Leaflet 701) stated that “canned or packaged food for cats, dogs or other pets” was standard rated. In 1984 VAT leaflet Pet Food 701/25/84 correctly reported the legislation and appeared in one place to recognise the difference between pets and working dogs (as it said food held for sale for pets but actually supplied for consumption by working dogs would be standard rated) but then went on to repeat from before that “food…for cats, dogs and other pets” is standard rated if canned packaged or prepared.
142. The leaflet Pet Food was re-issued on 1 November 1986 and included this same phrase.
143. Any ambiguity on how HMRC may have intended this to be interpreted was made clear in its Business Brief no 17 published on 12 September 1994 where it stated that
“Any canned, prepared or packaged dog food, including complete feed, not specifically held out for sale as greyhound food, is also standard rated.”
144. In other words we find (and HMRC did not suggest otherwise) that HMRC’s public position up to 1994 was that all dog food was standard rated. Neverthless, HMRC’s published position changed with this Business Brief because it accepted for the first time that a complete food for greyhounds which was specifically held out for sale as food for greyhounds would be zero rated. It published Notice 701/15/95 Food for Animals on 1 June 1995 in which it stated at paragraph 12 that all dogs were pets unless racing greyhounds.
145. This Notice was replaced in March 2002 with Animals and Animal Food 701/15/02. Here HMRC recognised that working dogs were not pets. It stated:
“A product which is claimed as being suitable for all breeds, size and age of dog is standard-rated.
If a specifically formulated food is held out for sale exclusively for working dogs it will come within the scope of the VAT relief – unless it is biscuit or meal.
Therefore ……
Dog food (other than biscuit or meal) is zero rated if it is exclusively for….working sheep dogs of any breed, dogs trained and used as gun dogs, racing greyhounds.”
146. Guidance agreed between HMRC and the Pet Food Manufacturers Association was that “only new products with approved packaging could be zero rated. Existing products continued to be standard rated.” For this reason, says Mr Skinner, the appellant developed a new range (Field & Trial) rather than seeking zero rating for its claim products. It was not until much later, in 2009, that it lodged the claim to recover VAT charged on the claim products.
147. The appellant is particularly aggrieved that the view of the law stated in HMRC’s public notices did not reflect a number of tribunal decisions starting with Popes Lane in 1986 (we refer to them in paragraphs 167-171 below) with the result that the appellant remained unaware that the tribunals had ruled the law to be something other than what HMRC represented the law to be in its public notices.
148. The appellant’s position is also that we should give less weight to its packaging than we might otherwise, on the basis that HMRC’s position on the appellant’s packaging is disingenuous: HMRC having, in the words of the appellant, flouted three tribunal decisions and for so long stated that all dog food was standard rated, and that therefore by implication taken the position that it would have made no difference had the appellant’s packaging stated the food was for working dogs, HMRC then took the position in this Tribunal that the appellant’s packaging was highly relevant and indeed even determinative of the appeal against them.
149. We were given no explanation for why HMRC’s manuals did not reflect the tribunal decisions we discuss below, but then we did not ask for one as we are not undertaking and nor do we have jurisdiction to undertake a judicial review. If the reason the decisions were not reflected in the public notice was that HMRC at the time considered the various Tribunal decisions to have been wrongly decided, we think the proper course of action for HMRC would have been to appeal the tribunal decisions, or at the very least acknowledge them in their public notices.
150. Nevertheless, it seems to us that, while HMRC’s conduct may be open to criticism, and that the appellant might even have had some sort of claim against HMRC founded in judicial review on the basis it acted to its detriment in reliance on incorrect public notices, the question for this Tribunal is how the appellant actually held out the claim products for sale: it is not a question of how they would have held them out had HMRC’s leaflets properly reflected the law.
151. Therefore, we are unable to agree with the appellant that HMRC’s public notices are relevant to the questions in front of this Tribunal.
“…the tribunal of fact must bear in mind that in making that assertion [that passing on the tax to the customer caused the taxpayer damage] the trader may…. be forced into the position of providing material relevant to a time when it did not suspect and had no reason to suspect that it might be overpaying tax, and thus, have any need to prepare a claim for repayment. …. Lacunae in the evidence should not be considered to the detriment of the trader. It was, after all, the taxing authority which caused the problem in the first place. Thus, it seems to me, if, after considering all the evidence, there is uncertainty or absence of detail, that should not be held against the trader….”
153. We cannot agree that this is authority that we should ignore or downplay the relevance of the appellant’s packaging. In that case, HMRC had the burden of proof to prove unjust enrichment, and had proved that the tax had been passed on to the taxpayer’s customer. This meant that an evidential burden had shifted to the taxpayer to show that it had suffered damage despite the passing on of the tax to its customer. What Moses J was saying was whether the taxpayer had discharged that evidential burden was to be assessed sympathetically taking into account that, due to HMRC’s fault in incorrectly applying the law, the taxpayer would not have known at the time that it needed to keep the records necessary to prove such damage.
155. There is therefore nothing in this case to assist the appellant. We give no less weight to the packaging and other marketing material than we would have given to it in a case where there was no question of HMRC being at fault for misrepresenting the law in its public notices.
156. It was part of HMRC’s policy that unless specially formulated for working dogs, a dog food was a pet food as it would be suitable to be eaten by pet dogs.
157. While we agree that a food unsuitable for a particular animal could not be described as food for that particular animal, we do not agree with HMRC that just because a food is suitable for a particular animal it is necessarily food for that sort of animal. In Fluff Ltd (trading as Mag-it) [2001] STC 674, which was a case where it had to be decided whether maggots, suitable as fish food, but sold from a vending machine as fishing bait, were “animal feeding stuffs”, Laddie J said that:
“in deciding that [whether it was fish food] one must look not just at the nature of the material but the way in which it is supplied”
So although suitable as fish food, the maggots were not zero rated because they were not intended as fish food but rather as fish bait.
161. It is HMRC’s case that because the subjective intentions of the purchaser are irrelevant, it is irrelevant whether or not the purchasers of the appellant’s various dog foods in issue were in fact gun dog owners.
167. HMRC considered the Popes Lane case mentioned above as authority for the proposition that dog food supplied in a manner that it was unlikely to be bought as pet food (lumps of meat wrapped in bin liners) would not become pet food merely because the supplier, in an attempt to broaden its customer base, changed its name to include the word “pet” and advertised pet foods for sale. This just seems to us to be an application on its particular facts of the principle that that it is the intentions of the supplier objectively determined that dictate whether the animal food is intended primarily for pets.
168. Supreme Petfoods Limited [2011] UKFTT 19 (TC) seems to be another application of the same principle but to very different facts. Ferret food was found to be pet food because as a matter of fact the Tribunal found that most ferrets were kept as pets.
“From the objective evidence we conclude (and find as a fact) that food held out for feeding ferrets generally is pet food, because ferrets generally are pets”
169. HMRC consider this to be a “key” case in this appeal as it demonstrates that food for all types of one animal species where most of that species are kept as pets is pet food. In other words, their case is that as the appellant’s packaging stated the claim products were suitable for all dogs, and as most dogs are pets, it follows that they were pet foods.
170. HMRC saw Norman Riding Poultry Farm Ltd [1989] VATTR 124 as application of the principle that ascertaining objectively the supplier’s intention requires the Tribunal to consider how the food is held out for sale. In that case minced chicken wrapped in clingfilm, not specifically stated to be pet food and 75% of which was sold to owners of working dogs, was found not to be pet food.
171. HMRC also relied on the case of P A Peters & K P Riddles t/a Mill Lane Farm Shop (VTD 12937) as indicating that what matters is the packaging and signage. In this case (say HMRC) the appellant’s intention was to sell to owners of working dogs but his food was held out for sale under signs saying “frozen pet food” and was therefore found to be standard rated.
“how the products are held out for sale will depend upon a number of factors including what is said to the customer leading up to the sale, what is said on the products or their packaging, how they are advertised and how the trader generally holds out his business.”
174. We reject HMRC’s case that the packaging alone will always determine how the seller is holding the food out for sale.
175. By the 1990s many, probably the bulk, of the appellant’s sales were wholesale sales in that the appellant was only selling directly to the consumer (the dog owner) in the minority of cases. HMRC considers a comparable case to be Supreme Petfoods as that is the only case on pet foods involving a sale by a manufacturer. In that case, the tribunal decision revolved around the packaging: there could be no sign above the door for the tribunal to consider as the taxpayer was not a retailer. Similarly HMRC think this case should revolve on the packaging as what was on the packaging was how the appellant held the product out for sale to the ultimate consumers.
(1) the evidence of all the witnesses, both from the appellant and from other businesses was that the market saw Skinner’s food to be gundog food (see paragraph 108 & 110);
(2) most shows attended were for gundogs;
(3) the appellant sponsored gundog events;
(4) its consumer base was gundog owners and owners of other working dogs (see paragraph 112).
In these circumstances we find that the representations made by the appellant were that the food was gundog food and working dog food.
183. It is part of HMRC’s case that because Mr Hart (on behalf of the appellant) wished to widen the claim products’ market to pet dog owners and actively took steps to do so, then objectively the claim products were held out for sale as pet food.
187. HMRC considered it relevant that, when the PFMA guidance changed in around 2001, the appellant did not at that point simply re-label its food as working dog food and claim it was zero rated. Yet the guidance only said that a pet food that was repackaged and labelled as working dog food would not qualify. This, said HMRC, implies the appellant thought its dog food was pet dog food.
190. We have accepted the appellant’s evidence that it actively marketed the claim products as gundog and working dog food. But we did not have any evidence (apart from the evidence about its website) about how it was marketed after Mr Skinner retired in 1997 and Mr Hart left in about 2000. We infer that, from that from around about the time of the introduction of its Field & Trial range in 1998, the appellant would have ceased to actively market the claim products as gundog food. This follows as (1) logic dictates the appellant would have switched its marketing activity to its new zero rated range; (2) sales of the claim products did fall off significantly; and (3) by 2010 the remaining claim products in production were relegated to the “pet” side of the appellant’s website.
191. Therefore, should we give the packaging a greater significance to the claim products sales post-1998 sales then we have given to its earlier packaging? With one exception, we think not. For all the claim products bar Ruff & Ready, demand fell steadily if slowly until production ceased. As we have already said, this indicates to us that its market was gundog and working dog owners because it indicates that the consumers switched to the new working dog food range. Although the buyer’s intentions are irrelevant by themselves, they are as we explained in paragraph 162 an indication of how the seller held out the product for sale. As the sales fell away to nothing, we find that the post-1998 sales of the claim products were in response to pre-1998 holding out (described above in paragraph 177) of the claim products as gundog and working dog food. In particular, we do not find that (for the reasons given in paragraph 73) that the sales were in response to the appellant’s website and we accept Mr Skinner’s explanation of why the remaining claim products were placed on the “pet” side.
195. For the reasons given above and in particular that Mr Skinner considered the appellant’s product to be gundog food, and that we find based on his evidence (see paragraph 36) that his purchasers required working dog food, we find he would have held out the Waveney’s and Crane own-label food to the company’s two purchasers to be working dog food.
200. A second and distinct ground on which HMRC considered that some of the appellant’s claim products should not have been zero rated was that they were “meal” and thus excluded from zero rating even if animal feeding stuffs. As mentioned above, excluded from animal feeding stuffs are:
“…biscuits and meal for cats and dogs”
This exclusion applies whether or not the biscuits and meal are for pet dogs or other dogs.
201. HMRC suggested that “meal” in this context meant “dried dog food that takes a muesli-like form excluding extruded pellets”. They suggested all of the claim products were meal with the exclusion of Protein 23 (on the basis Protein 23 was extruded pellets).
211. He said in the dog food industry what Mr Skinner called “meal” in the sense of Skinner’s Dog Meal would now be described as a muesli-like dog food. This was because it comprised microionised (ie steam cooked) flakes of cereal. Mr Livingstone said muesli in the dog food sense was also likely to contain pelleted protein.
213. Mr Skinner’s evidence was that he called the appellant’s claim product Dog Meal because his background was as an agricultural feed merchant and familiar with a dry complete food for animals such as sow and weaner meal. Although such meals contain ground cereals, these are only steamed, they are not baked and the production of meal in this sense in no way resembles how a biscuit would be produced. Mr Skinner clearly believed that his customers would understand that a meal was a complete food because otherwise he would not have named the product Skinners Dog Meal.
215. This was in contrast to Mr Southey’s opinion which was that his clients (pet food suppliers) would have been ill-advised to describe a complete dog food as “meal” as it would be understood to be a mixer. We do not find Mr Skinner’s, Mr Livingstone or Mr Hill’s evidence on the point detracted from Mr Southey’s expert opinion as the two were readily reconciled: Mr Southey’s clients were pet food suppliers; Mr Skinner considered his clients to be working dog owners and suppliers to working dog owners. Such persons were much more likely to be of an agricultural background and familiar with pig meal and would understand “dog meal” to be a dry, complete food.
216. Mr Skinner in any event said that in the context of “biscuits and meal” he would understand meal to be a crumbled biscuit mixer. Mr Hart gave exactly the same evidence at the hearing. We note that in an earlier letter he gave “meal” the meaning of complete food. It is not surprising that Mr Hart, familiar with Skinner’s Dog Meal and meal with the meaning of a biscuit-type mixer food, was inconsistent in his use of the terms.
217. HMRC’s guidance is not, of course, the law, but we refer to it as evidence of what HMRC at least understood the meaning of “meal” in this context was at the time the leaflets were written, and therefore as evidence of the common meaning of the term in that context at that time . We note that in its 1984 Leaflet “Pet Food” 701/25/84 HMRC stated of “meal” that:
“You must standard rate supplies of biscuits and meal for cats and dogs and waste from the manufacturer of such products. This includes rusk and similar cooked or baked cereal based products for cats and dogs.”
218. In its Business Brief no 17 of 1994 mentioned above in paragraph 143 we also note that HMRC said:
“Ordinary biscuit or cereal based meal designed to be mixed with meat or other food as part of the diet for dogs, including greyhounds, is standard rated.”
219. HMRC repeated this view the following year in New Notice 701/15/95 Food for Animals at paragraph 17(c). A similar view was expressed in the replacement notice in March 2002 Animals and Animal Food 701/15/02, which stated at paragraph 6.5:
“The terms ‘biscuit’ and ‘meal’ mean dry products either –
-coarsely ground basic commodities; or
-baked products consisting predominantly of cereal and fat and not providing all the nutrients required by the animal.”
220. We find from this that HMRC has for at least 20 years consistently considered ‘meal’ in the ‘biscuits and meal’ context to refer to be a baked biscuit type product made primarily from cereals and used as a mixer food.
“(a) canned foods;
(b) semi-moist foods;
(c) complete dry (including rehydratable) foods;
(d) biscuits and meal;
(e) others, including quick-frozen products and cooked foods not supplied in cans.”
It further defined each of these terms. For (c) and (d) it said:
“(c) Complete dry foods are based on cereal with added animal or plant-based protein meals. They may be intended to be fed dry or to be steeped in water beforehand (rehydratable).
(d) Biscuits and meal are intended to be fed to dogs with suitable canned food, fresh food or scraps.”
It said (page 4):
“[9] Dog biscuits were the earliest type of food to be manufactured specially for consumption by pets, originating in the nineteenth century. Spillers has long been the principal manufacturer of dog biscuits and meal in the United Kingdom….
[10] Canned meat for dogs and cats appeared on the market in the inter-war years….The market for canned products expanded rapidly after about 1950….
[11] Since 1970 two other American-owned companies….have attempted to challenge the market leaders by introducing the semi-moist and complete dry types of pet food which were new to the United Kingdom market though already familiar in the United States. The impact of these new products has not been very great so far, but with the increasing cost of tinplate and increasing processing costs for canned foods, they are expected to become more important in the future….”
223. HMRC referred us to descriptions on their websites by other manufacturers of dog food of their dog food as “meal”. One was called Pedigree Complete Junior Maxi Poultry and Rice and was described as “Pedigree complete meal for large breed, growing dog…..”. Cereals were the major ingredient followed by meat and meat by-products.
“the edible part of a grain or pulse ground to powder. Now commonly understood to exclude the product of wheat (this being called flour).”
Meaning 1: Ground cereals other than wheat; or ground fish and bone.
Meaning 2: A mixer for use with meat or canned dog food made primarily from wheat flour with other ingredients and baked; in particular made from the same or similar ingredients to a dog biscuit and baked in the same way but crumbled or broken up rather than cut into shapes;
Meaning 3: A complete feed for an farm animal (such as pig meal);
Meaning 4: A serving of various foods sufficient at that time to dispel hunger.
229. Meaning 2 is inconsistent with Meaning 3 as one is a mixer and the other a complete food.
231. Nevertheless, there is a clear overlap between Meanings 3 & 4 at least in the context of working dog food. Skinners Dog Meal was meal in the sense of Meaning 3; but it was also a complete food and could be described as “a meal” in the sense of Meaning 4. We also note that Wilson’s dog food was a food for working dogs and it is not clear if they used the description referred to above in paragraph 225 as “meal” in the Meaning 3 or Meaning 4 sense.
233. The first thing we note, and contrary to HMRC’s submissions, is that whatever “meal” meant in that context, it carried only one meaning. This is a basic rule of statutory construction. Had the legislature intended to refer to more than one thing, then it would have said so.
235. Contrary to HMRC’s submisstion, when Parliament used the word “meal” they did not intend it to mean meal with Meaning 2 (crumbled biscuit mixer food) and meal with Meaning 3 (dry complete food). They intended only one meaning.
236. So we reject HMRC’s case that “meal” simultaneously carried Meaning 2 and Meaning 3 (and potentially Meaning 4). While just possible it could have carried Meanings 3 & 4 simultaneously, Meanings 2 & 3 are entirely incompatible. “Meal” could not have been intended to mean meal, the incomplete mixer food, at the same time as (a) meal, a complete food.
241. It is HMRC’s case that it carries the meaning of a dry muesli like product which is a complete food. This, they say, was how it was understood by Mr Skinner, Mr Livingstone and Mr Hill.
242. We are unable to agree. This was how “meal” was understood by those witnesses as a stand alone term because of their background in agricultural feeding stuffs. The evidence overall, from Mr Southey, Mr Skinner, the MMR and HMRC’s use of the terms in its own leaflets, is that in the 1970’s and thereafter “meal” in the context of “biscuits and meal” referred to a biscuit-like mixer food for dogs.
247. We were referred to Innocent [2010] UKFTT 516 (TC) because it was said to show that Parliament could be taken to have intended to legislate in respect of something that did not exist at the time the law came into force:
[37] As Warren J noted in Kalron, the word beverage is not commonly used now. There is also the point that smoothies are a recent innovation. Would the draftsman of Group 1 back in 1972 have considered a smoothie to be a beverage? If asked “is a smoothie a beverage?” we assume he would answer “what’s a smoothie?”. Yet if we were now in the year 2010 to follow Mummery LJ’s suggestion (see paragraph 32 above) of asking a child the same question, his reply would no doubt be “what’s a beverage?”.
The Tribunal in that case decided nevertheless that a smoothie was a beverage.
249. Here HMRC are arguing the defined word “meal” should carry a meaning – that of a dry complete dog food - that was unknown or virtually unknown at the time the provision we are dealing with in this case first came into force in 1969. That it was a virtually unknown meaning in 1969 is shown by paragraph [11] of the MMR (see paragraph 221 above) where it is stated that only since 1970 were companies seeking to sell complete dry dog foods. And even then the MMR does not refer to them as meal.
252. “Meal” had only one meaning in this context.
254. Therefore, we reject HMRC’s case that some of the claim products were standard rated as “meal”.
This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.