Jaffa Cakes are a firm favourite in my household but that little sugary treat caused quite a stir back in 1991 when the age-old debate of cake vs. biscuit had made its way into a VAT tribunal.
In the UK, there are five categories that an item may fall into for VAT purposes and this is what led to the tribunal:
- Standard – 20%
- Reduced – 5%
- Zero – 0% (VAT is charged on these items but it is currently set at 0%)
- Exempt (Goods/services that are specifically exempt from VAT include education, insurance and financial services)
- Outside the scope (Goods/services that are not subject to VAT include salaries and donations to charities)
So, is there VAT on Jaffa Cakes?
McVities had been treating Jaffa Cakes as zero-rated as they considered them to be a cake which falls under Sch. 5, Grp. 1 of the Value Added Tax Act 1983. Essentially, cake is a necessity and so attracts VAT at 0%.
HMRC argued that the Jaffa Cakes were in fact a chocolate-covered biscuit and therefore fell into the exception 2 of the Sch.5 legislations. Essentially, a chocolate biscuit is a luxury so attracts VAT at 20%.
HMRC had carried out market research asking shoppers whether they considered Jaffa Cakes to be a cake or a biscuit however this was not considered to be evidence and therefore carried no weight in the tribunal. They also argued that the packaging in which Jaffa Cakes were wrapped was “uncakelike” and Jaffa Cakes are found with biscuits in the supermarket.
CONCLUSION – Jaffa Cakes – cake or a biscuit?
Ultimately, Jaffa Cakes are considered cakes because they have more cake characteristics than those of a biscuit:
- They are baked using cake ingredients
- When stale, the sponge goes hard whereas a biscuit would go soft
As a result, Jaffa Cakes are zero-rated for VAT purposes.
VAT can be a complex area so if you are considering registering for VAT or are already registered and would like someone to carry out a review of your returns, please do get in touch! I would be more than happy to help with any query, no matter how small.