Tax Highlights Awards: Best Cake Case of the Year


The U.K. tax year wouldn't be the same without a decent case about cakes, and 2014 didn't disappoint in this regard. Once again, the curious distinction drawn by the UK’s value-added tax (VAT) law between cakes (zero-rated for VAT) and most other forms of confectionery (subject to VAT at the standard rate) required the judiciary to chomp on a taxpayer’s wares in order to determine their VAT status. Following on from McVitie’s Jaffa cakes and Marks and Spencer tea cakes (both eventually held to be cakes), the snowball, a coconut-sprinkled, chocolate-covered mallow, became the latest item of confectionery whose “cakeyness” was questioned by HM Revenue and Customs (Lees of Scotland Ltd and Thomas Tunnock Ltd v HMRC [2014] UKFTT 630 (TC)).

After viewing the snowballs on a tray of cakes and then sampling, “in moderation”, both them and the other goodies (a bakewell tart, a meringue, various tea cakes and a mini-jam snow cake), the First-tier Tribunal concluded that the snowballs had sufficient characteristics of a cake to be characterised as such. They looked, felt and tasted like cakes. They would be eaten as cakes, most likely sitting down at a table (all those fiddly bits of coconut would fly all over the place otherwise) together with some sort of beverage. Snowballs therefore passed the “cake test” and were accordingly zero-rated.

In reaching that conclusion, the tribunal was in good company. Before visiting one of the companies that made the snowballs, an HMRC official brought some of them into her office and asked her colleagues what they made of them. Most of them concluded that they were cakes.

Dr Craig Rose, Technical Editor, Global Tax Guide

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