The new Jaffa Cakes?



Is a Jaffa Cake really a cake…..or is it a biscuit? There’s no question more likely to get an accountant excited!

You see, cakes are zero-rated for VAT but chocolate biscuits have 20% VAT applied.Therefore, this was the subject of big legal case between HMRC and McVities a number of years ago. HMRC claimed they were chocolate biscuits so that they could have the 20% VAT, while McVities were adamant they’re cakes. And every accountant learned all about this for their exams.

But, could there be a new rival? There is currently a court case between HMRC and Sportech, a business that owns Spot the Ball. HMRC claimed that there should be VAT on Spot the Ball and tried to charge £93 million of VAT but they lost the case last year. However, HMRC has now been given a chance to appeal.

The debate comes down to whether Spot the Ball is:

  • a game of chance, which is exempt from VAT; or
  • a game of skill, which is subject to VAT.

Which do you think it is? The answer’s worth £93 million to someone.

Of course, these are nice, big headline court cases. But how does this apply to you? VAT is a complex area and the rules over what is, or isn’t, subject to VAT can be difficult to understand. Therefore, it’s always worth asking an expert.

So, if you do have any queries, please let us know. It might not be worth £93 million, but getting it wrong can add up.

By the way, the courts ruled that Jaffa Cakes are indeed cakes. They looked at lots of factors, but the deciding one was “what happens when it goes stale?” – cakes go hard while biscuits go soft. Some of the finest legal minds in the country eventually just let a Jaffa Cake go stale to settle a multi-million pound case. They must have all been on hourly rates!

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Any questions?

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Added by Jon Davies

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