The Great British Biscuit v Cake Off

It’s not often you find that Mary Berry or Paul Hollywood might have come in handy in a tax case. However, just prior to this year’s Great British Bake Off, a far weightier confectionery matter was being judged at the First Tier Tax Tribunal.  

The case was brought by two Scottish companies - Thomas Tunnock Ltd and Lees of Scotland Ltd. Quite literally presented with a plate of sweet treats the Tribunal had to decide if a ‘snowball’ - a chocolate and coconut covered marshmallow - was a cake or a biscuit.

You might have thought the great cake versus biscuit question was decided in a case over 20 years old when a Jaffa cake was determined to be a cake for VAT purposes.  

You might also think it’s all bit daft. However the numbers are significant. Effectively, cakes don’t have VAT added to their price, whereas biscuits do. Both companies had been told to treat the product as a biscuit and had been charging VAT (and paying it over to HMRC). But both believed it was a cake and in late 2012 Lees claimed £2,057,497 in overpaid VAT and Tunnocks £805,956. 

So, how does one decide whether a snowball is a cake or not? Well, the tribunal looked to see there were ‘sufficient characteristics’ of a cake. They looked at how snowballs were made, what ingredients went into them and how they were packaged and sold.  

Very importantly the Tribunal had also to eat the said confectionery.  Their report on this tasting adventure is fabulously funny, as their endeavours are recorded in extravagant detail. 

Firstly, the Tribunal were presented with a plate including the snowballs, a Mr Kipling Bakewell Tart, a Jaffa cake and a Waitrose meringue. The judges tasted them all - in moderation it was noted - and concluded that the snowball was not out of place on a plate full of cakes and might be nice with a cup of tea.  

They found the product sweet and were clearly quite distressed by the amount of mess that the coconut coating produced - going so far as to state they would prefer to consume one sitting down, preferably at a table, because of the risk of coconut crumbs! The decision also notes that after eating a snowball they were left with sticky fingers, like eating a vanilla slice, and had to clean their fingers.  In the Bake Off tent Mary would probably have warned them to keep their messy mitts off their VAT legislation.  

Although not entirely ‘cake like’ the judges did conclude that there were sufficient ‘cake characteristics’ in a snowball that it could be what is called ‘zero-rated’. This means VAT is charged at 0%, so effectively there’s nothing to add to the price.  A victory for their Scottish manufacturers.  

Given the detail of the tasting notes, and that the judgement even referenced the Great British Bake Off, don’t be surprised if you find a new technical VAT challenge in next year’s show.  

Helen Thornley, Tax Consultant

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