Taking the (VAT on) Biscuits! – Business Advice

Vat is a consumption tax

VAT is a consumption tax, which means the more you use, the more you pay. Although businesses can often reclaim the VAT they have suffered VAT has a social conscience — it is charged on ‘luxury’ items. By way of example, potatoes are zero–rated (i.e. subject to VAT at 0%) but a packet of crisps includes an extra 20%. Food, as used as an example above, does give rise to a number of peculiarities that, to be honest, you just have to laugh at.

The most infamous VAT case in terms of food has to be the great Jaffa Cake debacle. As mentioned earlier, food, as a basic necessity, is zero rated for VAT, whereas luxury items, such as confectionery, are not. The definition of confectionery does not include cakes or biscuits other than biscuits wholly or partly covered in chocolate. And therein lay one of the biggest debates in
VAT history.

If a Jaffa Cake is a biscuit, because it is partly covered in chocolate, it is therefore liable to 20% VAT. If it is a cake, regardless of whatever proportion of chocolate coverage it is sporting, it is zero rated.

Naturally the manufacturers (McVitie’s) knew without a shadow of a doubt that it was a cake, after all the products are not called Jaffa Biscuits.

However, the VAT man offered evidence that Jaffa Cakes were stocked in supermarkets in the biscuit aisle and looked more like biscuits than cakes. Not only that, they were dunked in tea in exactly the same way that you might dunk a chocolate digestive, but wouldn’t risk with a Victoria sponge.

It was stalemate…

But in the end that was exactly what decided the case. When you commit that cardinal sin against a biscuit and leave it open to the elements, it goes soft and loses its dunkability.

A cake left out will go hard and stale. A Jaffa Cake, as its name suggests, takes on the durability of a stone when overly exposed, and was therefore found to be a cake.

Hurrah! Just think of all those pennies in tax you have saved.

Steven Englander

Steven Englander

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