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.
About Robert Lovell
Business and finance journalist