M&S Embroiled In New Tax Wrangle With UK Government...Over Teacakes

by Jason Gorringe, for LawAndTax-News.com, London

03 August 2005

It emerged late last week that the UK's Law Lords have 'reluctantly' referred a dispute between Marks & Spencer and the UK government over VAT on the firm's teacakes back to the European Court of Justice.

A somewhat sheepish group of Law Lords explained on Friday that an earlier ruling on the matter delivered by the ECJ had failed to clarify the situation sufficiently.

Writing in his summary of the case, Lord Hoffman explained that the supply of food is generally zero-rated for VAT purposes. However, confectionery is an exception to this rule, and chocolate covered biscuits are considered to be confectionery in such cases, and therefore face standard rate VAT.

Marks & Spencer, following these rules, accounted for VAT in their sale of the teacakes. However, in 1994, the UK tax authority suggested that the product had been mis-classified, and should have been deemed a cake, therefore qualifying for the zero VAT rate.

The retailer has thus far been unable to prove that it is entitled to a £35 million refund (based on sales of the teacakes from 1973), as the majority of the additional cost has been passed on to consumers.

The international business community awaits the ECJ verdict with bated breath.

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