Tribunal rules Scottish snowballs are VAT free

A first tier tax tribunal in Edinburgh has ruled ‘snowballs’ should be classed as cakes and therefore be zero-rated for VAT.

In the tribunal decision published last week, [Lees of Scotland & Thomas Tunnock v Revenue & Customs], the court found that a snowball does not have all of the characteristics of a cake but displays “enough of the characteristics of a cake that it should be classified as such”.

The coconut-covered confectionary item, popular in Scotland, are made by Lees of Scotland and Thomas Tunnock.

Both companies had appealed to the tribunal after HMRC decided that snowballs should be standard rated.

The Revenue had overturned a previous decision that they were zero-rated after a tribunal decision in relation to ‘Swedish snowballs’. The two confectioners argued that this tribunal decision was unsound because the ingredients, cooking process and shelf life were completely different.

The tribunal then had to decide whether a Scottish snowball had the characteristics that ordinary people would consider to be a cake, including the ingredients used, its manufacture, unpackaged appearance, taste and texture, circumstances of consumption, packaging and marketing.

In its written decision, the tribunal concluded that: “A snowball looks like a cake. It is not out of place on a plate full of cakes. A snowball has the mouth feel of a cake. Most people would want to enjoy a beverage of some sort whilst consuming it. It would often be eaten in a similar way to cakes; for example to celebrate a birthday in an office. We are wholly agreed that a snowball is a confection to be savoured but not whilst walking around or, for example, in the street. Most people would prefer to be sitting when eating a snowball and possibly, or preferably, depending on background, age, sex etc with a plate, a napkin or a piece of paper or even just a bare table so that the pieces of coconut which fly off do not create a great deal of mess. Although by no means everyone considers a snowball to be a cake we find that these facts, in particular, mean that a snowball has sufficient characteristics to be characterised as a cake.”

Jim Burberry, a VAT partner at Baker Tilly, said: “HMRC might have thought that the appellants didn’t have a snowball’s chance in hell of winning their case, but they were wrong. This is a victory for two of Scotland’s premier confectionery manufacturers, and a victory for cake lovers everywhere.”

Last week Baker Tilly’s David Wilson also warned that the UK’s muti-rate VAT regime would come under pressure at the European summit.

Following a country-specific policy statement issued earlier this month, the European Council said: “To assist with fiscal consolidation, consideration should be given to raising revenues through broadening the tax base.” However, Wilson dug around and uncovered a European Commission working document accompanying the official announcement that made it very clear that “broadening the tax base” meant VAT.

Recent conversations on AccountingWEB have highlighted the strange VAT rating anomalies that have fuelled many a tax tribunal (and trivia quiz).

One of the strongest reactions from the accounting community came from our recent VAT myths article on the issue of prohibiting zero ratings for articles of children’s clothing made of skin if they contain fur from Tibetan, Yemeni or Mongolian goats.

Comments
Time for change's picture

I'm tempted to say .........................

Time for change | | Permalink

"Oh Crumbs" - but that would infer a biscuit!

On a serious note, our system of taxation has become one of the most complicated and, in cases such as this the most costly and inefficient.

A similar case, referred to Marks and Spencer http://news.bbc.co.uk/1/hi/world/europe/7340101.stm

To add to the complication, on a regional basis, just down the road from me, in Barnsley, they refer to a "breadcake", for making sandwiches, as a tea-cake!

Tired out already and it's only 8.20am.

mrme89's picture

Teacake

mrme89 | | Permalink

Time for change wrote:

To add to the complication, on a regional basis, just down the road from me, in Barnsley, they refer to a "breadcake", for making sandwiches, as a tea-cake!

 

Once visited Nottingham and stopped off for a sandwich. After reassuring the person in the cafe that I wanted my bacon and egg in a teacake, I was suprised that it came out in a current teacake! Apparently they call teacakes, balmcakes?

 

 

Rachael_Power's picture

Teacakes    1 thanks

Rachael_Power | | Permalink

Whereas if you asked for a teacake in Ireland (or Scotland perhaps), this is what you'd get... 

Funny, eh? 

Oops

neileg | | Permalink

mrme89 wrote:
Once visited Nottingham and stopped off for a sandwich. After reassuring the person in the cafe that I wanted my bacon and egg in a teacake, I was suprised that it came out in a current teacake! Apparently they call teacakes, balmcakes?

I think you mean currant not current. And it's a barmcake not a balmcake.

mrme89's picture

.

mrme89 | | Permalink

neileg wrote:

mrme89 wrote:
Once visited Nottingham and stopped off for a sandwich. After reassuring the person in the cafe that I wanted my bacon and egg in a teacake, I was suprised that it came out in a current teacake! Apparently they call teacakes, balmcakes?

I think you mean currant not current. And it's a barmcake not a balmcake.

 

Indeed currant.

 

I presume its spelt barm, short for barmy?

@mrme89    1 thanks

neileg | | Permalink

Barm is the frothy scum that forms on the top of beer as it is fermenting. Barmcakes used to be made with the barm instead of normal yeast.

The OED links barmy with barm so you're not far off!

Tunnocks snowballs are cakes    4 thanks

sarah douglas | | Permalink

Hi 

Whenever you go for high tea in hotels and many tea places in Glasgow which I and my friends do a lot.  When Tunnocks snowballs are served in high tea then they are served as cakes on the 1st tier. the  desert items on 2nd including  scones with Cream and hot Jam.  Savoury the bottom tier.  

This is the right decision they are never served up as biscuits I am surprised the HMRC let it go this far. 

After all that I wish I could go for a high tea now. 

 

 

 

 

nigel's picture

A vote winner!

nigel | | Permalink

Should help garner votes for the No campaign! We need sensible tribunal decisions like this, I would hate to lose the Scottish tribunal decisions in future UK/GB VAT matters!!

Snowballs

PJDSimpson | | Permalink

I was counsel for Tunnocks / Lees - only case I've had in which I've asked the judges to eat the evidence - at least, so far...

Current Buns    1 thanks

chatman | | Permalink

neileg wrote:

mrme89 wrote:
it came out in a current teacake! Apparently they call teacakes, balmcakes?

I think you mean currant not current.

He might have meant current. I would certainly prefer a current bun to an out-of-date one.

Tribunal rules Scottish snowballs are VAT free. Hurrah! At last!

Jack Jones | | Permalink

I didn't even know what they were. Either I don't get out much or there's a lot of taxpayer's money being wasted.

Snowballs and all that

JohnHume | | Permalink

Congratulations on success at the FTT, Philip. Who knows .... if HMRC seek leave to appeal, the prospect of a 20% price hike may be enough to tip the balance on 18 September. The future of Scotland is in your hands. Unwrap it carefully!

The VAT Doctor's picture

Why?

The VAT Doctor | | Permalink

I just don't understand why the VAT position on a product that has been sold since the 30's and certainly since 1973 is unclear?  But presumably the companies sold everything to wholesalers plus VAT and so would have to pay back any VAT overpaid to HMRC?  Or is there an argument that the price was market based and the supplier suffered?  Whatever, there is always surely a case here where output tax has been paid over and also recovered?  Isn't the retailer in a better position to reclaim VAT?

Am I missing something?