Real Business delved into some of the raging viral debates around sales tax – and discovered a world where toilet paper is a luxury but Jaffa Cakes are considered vital.
On the face of it VAT rules are simple: all goods are liable for sales tax, unless they’re everyday necessities, in which case they’re not. But with a plethora of exempt, zero-rated and reduced rate goods in categories with definitions that are far from clear cut, there’s plenty of room for wrangling – and plenty who aren’t afraid of fighting their corner.
(1) Jaffa cakes
If she’d been around in 1991, you can guarantee that Marie Antoinette would have chosen a less controversial foodstuff to offer the starving proles. That a tribunal ruled the McVitie’s confectionary product to be a cake one-quarter of a century ago hasn’t stopped the debate continuing over whether the product should be treated as a luxury item or given a tax exemption on the grounds of being a necessity.
The makers of the sweet treat ended up in court because of the way UK VAT legislation differentiates between biscuits and cakes. The latter are treated as a necessity and exempt from sales tax whatever they’re coated in – but the amount of chocolate on a cookie makes a big difference to its price.
HMRC guidance on the difference between cakes and biscuits runs to over 1,000 words – and whoever wrote it obviously knew a thing or two about cookies, as they drew fine lines between gingerbread men with chocolate eyes (classed as a necessity) and biscuits with fine lines of the stuff piped over the outside of them (which are clearly a luxury good).
When appealing the taxman’s decision to change the categorisation of Jaffa Cakes, McVitie’s steered clear of the intricacies of biscuit decoration, instead plumping for the argument that Jaffa Cakes should be placed in their eponymous category. The argument put forward by the company owners was that the baked good goes hard when left out on plate, unlike a biscuit which goes soft.
But a keen member of the team also baked a 12-inch version of the treat to prove the point – and it was probably this that won the judge over.
The argument was most recently reignited when Ed Milliband claimed in a Mumsnet interview that Jaffas were his favourite biscuit – though his categorisation was less controversial than his adamant opposition to dunking.
Read on to discover which bathroom cabinet essentials are taxed in Australia, despite condoms being tax-free there.
Share this story