HMRC may well be interested
If you prefer your favourite biscuit coated in chocolate, you’re probably unaware that it’s costing you an extra 20%.
The reason – VAT
When VAT was introduced in 1973, products were determined as either essential or luxury.
Essential items were exempt from VAT or 0% rated.
Luxury meant either 5% or the top rate, currently 20% extra.
Cakes and plain biscuits were seen as essential foods, more likely to be homemade, whereas biscuits containing chocolate in any way – even just as decoration – were seen as luxury items and more factory made.
So, you can imagine, HMRC (formerly HM Customs and Excise) are keen for as many of these sweet treats to be chocolate biscuits.
The best known case was in 1991 when HMCE claimed McVities Jaffa Cakes were a biscuit, and therefore due to its chocolate coating, subject to Vat.
The case went to the Tax Tribunal, which found in McVities favour.
Apparently they baked a 12” Jaffa Cake to prove it was a cake, not a chocolate covered biscuit.
So next time you are munching your chocolate covered biscuit remember, courtesy of the UK’s sometimes weird tax rules, it’s costing you an extra 20%.
Tax law is not my speciality, but if you’ve got a question about marketing and advertising law, that’s a different story.