Is a Jaffa Cake food?  What about a Marks and Spencer Teacake?

This question isn’t as daft as it sounds – and it actually relates to Business Studies.  In fact, I ask my students this question every year….

This is actually a question about tax.  The introduction of value added tax (VAT) was complicated by the decision to ‘zero rate’ some products so that VAT wouldn’t be charged on them.  The best examples are children’s clothes, books, newspapers and food.

So what is food?  The definition matters.  The UK Treasury is facing a £3.5m bill, because of VAT wrongly imposed on a Marks and Spencer teacake, the European Court of Justice (ECJ) has ruled.

Customers paid VAT for 20 years before the authorities accepted the product was a cake, which does not command VAT.  UK tax officials acknowledged that chocolate teacakes had been wrongly classed as biscuits in 1994, prompting M&S to launch a legal battle to have the wrongly-paid VAT returned.

Thanks to a BBC article (some of which is outlined below) that’s helpful in answering this question for yourselves – and the truth about (utterly revolting) Jaffa Cakes is revealed…..

Zero rated [no VAT]

“Biscuits”
Chocolate chip biscuits where the chips are either included in the dough or pressed into the surface before baking

Jaffa Cakes
Bourbon and other biscuits where the chocolate or similar product forms a sandwich layer between two biscuit halves and is not continued on to the outer surface

“Cakes”
Marshmallow teacakes (with a crumb, biscuit or cake base topped with a dome of marshmallow coated in either chocolate, sugar strands or coconut)

Caramel or “millionaire’s” shortcake consisting of a base of shortbread topped with a layer or caramel and (usually) chocolate or carob

Flapjacks

Standard rated [17.5% VAT]

All wholly or partly coated biscuits including biscuits decorated in a pattern with chocolate or some similar product

Gingerbread men decorated with chocolate unless this amounts to no more than a couple of dots for eyes
Chocolate shortbread

“Snowballs” without such a base are classed as confectionary
Shortbread partly or wholly chocolate-covered

Cereal, muesli and similar bars with honey or other added sweetening matter

Comments