Premier Foods has been dealt a major blow after the High Court referred a VAT dispute involving its Hartley's Fruit Bars back to tribunal.

The company, Britain's largest food manufacturer, faces a tax bill of nearly £200,000 if it loses the case, which hangs on whether the bars should be considered confectionery or food. Confectionery attracts VAT at 17.5%, while food is zero-rated.

At a VAT tribunal in March, Premier Foods successfully argued that it should not pay a £192,723 tax bill on the bars because they did not contain an added sweetener and were not cooked so did not constitute confectionery.

HM Revenue & Customs appealed against the decision, claiming Premier's arguments had not been valid.

The High Court agreed with HMRC, ruling that the tribunal had decided the case on incorrect principles and it should go back to tribunal for a further hearing.

Hartley's fruit bars were launched in June 2005 but withdrawn from the UK market in March 2006.

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