Have Your Teacake And Eat It: How The Price Of A Cake Takes The Biscuit...

It just goes to show how much the cost of simple Value Added Tax can be to the humble taxpayer. Today, the UK Treasury is having to cough up a massive £3.5m bill, because the wrong VAT was added to a supermarket teacake
The European Court of Justice has ordered the bill to be forwarded to the UK Treasury as the wrong VAT was added to a Marks and Spencer's teacake. The foul up has cost the Treasury the whopping sum of £3.5m meaning that somewhere down the chain, it will come out of public pockets, rather than the government.

In the UK, VAT is not imposed on to food - it is one of the very few categories which actually gets away with not being stamped, yet the mistake on the humble teacake has been going on for around twenty years at Marks and Spencer, so the cost has been going up and up without anyone noticing. At the present time, most traditional bakery consumer items such as bread, cakes, flapjacks and Jaffa Cakes are exempt from being given VAT on top of their regular price, however, according to UK tax laws, it is still payable on cereal bars, shortbread and partly-coated or wholly-coated biscuits. A fine line, now clearly visible.

Since the UK tax officials in 1994 had officially understood that the teacake had been wrongly titled as part of the biscuit family, the food and clothing chain had to fight a far way to get the VAT back which had been wrongly paid.

The problem has been whether to class the item as a biscuit or a cake - no one has actually never been really sure, yet the rather sickly item covered in chocolate, light marshmallow and biscuit underneath has always trodden that fine line between cake or dunking biscuit with the British cup of tea.

It has been an argument which has now come with a hefty bill (we think of very little else in the UK Treasury,) and customers have been wrongly paying the VAT for two decades, so surely, we should be compensated? How many teacakes have been noshed by the Great British public in that time is beyond comprehension. Come to think about it, there is a pretty gallon or two of tea which has washed this expensive item down also.

The retail chain Marks and Spenser have too been treading a tight rope over the last few years as they have become notoriously out of touch with fashion and growing trends, so this little announcement was hardly going to be pressed against their valued customers - losing anymore of the middle class clientele would be disastrous for the iconic chain.

So, coming to the rescue, the European Court of Justice has decided that to give the money to M&S would be only "unjustly enrich" them so it was decided that despite the fact that the VAT has to be repaid in full, the final say so has to come from the British Courts - hopefully the House of Lords will also tow the line in agreement over the final decision.

In the meantime the Lords and the boys at HM Revenue and Customs will decide what is to be down and who should actually pay, naturally the taxpayer will but through what channels is yet to be shown. SO far, the doors have been tightly closed over any negotiations.

In a statement from Revenue and Customers, it said,

"This is a very complex judgment on which it would be premature to make any comment until the House of Lords has handed down its judgment."



Probably quietly sweating somewhere, M&S will find out the outcome as soon as humanly possible. So far a spokeswoman for the chain told BBC News,

"We are pleased with the outcome which endorses our position. We're optimistic that the House of Lords will now find in our favour and hope that this will conclude the matter and draw a line under this protracted litigation."



Yet the situation is not as easy as it sounds and it were down to just a case of someone paying back a fee then it wouldn't be so bad, but there are complications. Companies, until three years ago in the UK, came under one of two categories - repayment or payment traders. Marks came under the payment heading whose sole responsibility was to pay VAT to the government every financial quarter, sounds simple enough? No.

M&S wanted to state in the courts that although they paid the VAT, other supermarkets who trade generally as food markets (as opposed to M&S who sell food on the side, if you like) these shops were treated "differently on the issue of chocolate teacakes." Sounds more like sour grapes rather than teacakes...

In other terms, M&S say that they were not handed back the VAT as other main supermarkets were. Perhaps it seems that this may be a short sharp nudge in the ribs for Marks and Spencer to decide whether they are a clothing chain or a food chain.

HM Customs officials had added a fly in the ointment for M&S saying that the chain would not have been that better off if they had received the VAT back, yet this surely isn't about money, it's the principle am I right? A chain as giant as M&S aren't going to quibble about money are they? (We'd be surprised!)

So, as a result, the trade tribunal's opinion, there is likely to a payment of no more than 10% (£350,000) - anything more than that would be, in their words, an "unjust enrichment of the company."

On the other hand, European Court of Justice say that a separation of each heading should be paramount - to differentiate between payment and repayment traders should be not so vague so to avoid such a fisticuffs in the future.

As usual, the House of Lords will have the last say.

After all, it is the House of Lords who run the country....

mduffy 2008

picture from wwww.bignjuicy.co.uk/teacake.gif

http://news.bbc.co.uk/1/hi/world/europe/7340101.stm