Snowballs or return of the Jaffa Cake debate

Many of you will recall that the VAT treatment of Jaffa cakes was a contentious subject a number of years ago and served to highlight how difficult it can sometimes be to determine the VAT liability of an item. A recent case for two businesses that sold marshmallow chocolate snow balls has resurrected some of the arguments used in the great Jaffa Cake debate. The manufactures sought to argue that the products were standard rated confectionary and instead were zero rated cakes and submitted a claim for VAT over declared, where as HMRC’s view was that the products were confectionary and correctly standard rated.

The tribunal chairman decided in favour of the businesses on the basis that no objective test could be used to determine if the products were cakes or confectionary, instead number of factors should be considered when deciding if an item is a cake or not. The chairman therefore considered factors such as ingredients, texture, packaging, shelf life, where it was consumed and rather intriguingly how the snowballs ‘behave’ once unpackaged.

Somewhat strangely The Tribunal agreed that the snowball products were confectionery but also had sufficient characteristics of a cake for them to be characterised as a cake. This means that they could be zero rated for VAT purposes.

Having considered this issue HMRC have now produced Business Brief 36/2014 accepting the decision but pointing out that simply calling a product a snowball would not mean that it was a snowball for VAT purposes as it would need to be a dome of marshmallow coated in chocolate, sugar strands, carob, cocoa, coconut or a mixture of these with or without a jam filling.

Affecting businesses should change their VAT codes for these products going forward and may be able to submit a back claim for VAT declared over the last four years, subject to the usual unjust enrichment rules.

 

This case highlights just how difficult it can be to determine the VAT treatment of a product or transaction. If you or your client supply ‘snowballs’ and would like to discuss the opportunity to recover VAT previously declared please call our free VAT helpline for a no obligation discussion.

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