It's my personal opinion that you should never assume anything with VAT. Many of you are probably thinking now of the Jaffa Cakes case which was about whether it was a cake or a biscuit?
McVitie's Jaffa Cakes are legally considered a cake and not a biscuit!
It's sold in the biscuit aisle, can be eaten like a biscuit and advertised the same way as other biscuits. But it has the same ingredients as a traditional sponge cake and goes hard when it goes stale, unlike a biscuit which goes soft. In the UK, value-added tax is payable on chocolate-covered biscuits, but not chocolate-covered cakes.
"McVitie's classified Jaffa Cakes as cakes, which HM Revenue & Customs accepted, but always had misgivings about!"
In 1988, the statutory definition of confectionery (which is subject to VAT) was changed to include items of sweetened prepared food normally eaten with the fingers. HMRC undertook a review and reversed its viewpoint ruling that Jaffa Cakes were actually biscuits partly covered in chocolate and so subject to VAT. In 1991 McVitie's appealed and headed off to a VAT tribunal.
The tribunal assessed the following:
The product's name
The ingredients
The product's texture
The texture of the product when it goes stale
The structure of the product
The size of the product
How the product is sold in shops
How the product is marketed
The court found in favour of McVitie's and stated that, legally, Jaffa Cakes are considered a cake, which means that McVitie's doesn't have to pay VAT on Jaffa Cakes in the UK.
This all happened back in the early nineties, but 30 years on we have the issue with other confectionery bars. In accordance with the 1988 statutory definition of confectionery, cereal bars held together with syrup are subject to VAT.
However, Wm Morrison Supermarkets have recently argued that this definition does not apply to Nakd Wholefood bars whose main ingredient, dates, was already sweet and not sweetened by other ingredients or natural flavourings.
The tax tribunal decided that the cereal bars were still confectionery, the ingredients had been processed, packaged as a treat snack and finally marketed as treats!
So, I'll leave you until next time pondering how VAT can be so tricky, and with the other thought, can a pineapple flavoured Jaffa cake still be called a Jaffa cake? I thought a Jaffa was an orange.
Until next time ...
ROGER EDDOWES Business Godparent
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Roger trained at Edward Thomas Peirson & Sons in Market Harborough before working at Hartwell & Co, followed by Chancery, as a partner. He started Essendon Accounts and Tax with Helen Beaumont in 2014 as a general practitioner with a hands-on approach.
Roger loves getting his hands dirty, working with emerging, small-to-medium and family businesses to ensure they receive the best possible accountancy advice. Roger utilises an extensive network of business contacts to leverage the best guidance and practical solutions.
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