How do you get an accountant excited? Ask them if Jaffa Cakes are cakes or biscuits! It’s every accountant’s favourite question as it’s all about VAT.
Well, this week brownies have entered the Biscuit vs Cake debate. A court case was decided on whether a healthy brownie was indeed a cake or a luxury biscuit. And the decision was worth £300,000 for the manufacturer.
You see, cakes are treated as a staple food and have no VAT on them. Biscuits also fall into this category but luxury biscuits, eg with chocolate on, have 20% VAT added.
HMRC argued that Pulsin’s health food brownies were luxury biscuits and chased £300,000 of VAT. However, a court decided this week that the brownies can be treated as cakes, even though they don’t contain any eggs, dairy or gluten.
Judge Amanda Brown conceded that the brownies wouldn’t fit in on a traditional cake stand alongside a Victoria Sponge, French Fancy or chocolate eclair, but stated they’d be right at home at a cricket tea.
Judge Brown also felt the texture and taste were consistent with cakes.
So, there you have it – brownies are cakes. It’s official.
This was also 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.
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.
[ 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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