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M&S finally wins £3.5million battle with the Treasury over calling chocolate teacake CAKES and not biscuits
Last updated at 17:22pm on 11.04.08The 35-year saga of the Marks & Spencer chocolate teacakes ended in a costly defeat for the Treasury yesterday.
It was told to pay back the £3.5million it levied in VAT on the products which officials had wrongly classified as chocolate biscuits.
The distinction was crucial because while chocolate biscuits are subject to standard VAT, chocolate cakes are zero-rated.
The error was made when the sales tax was introduced in Britain in 1973 and ran until 1994 when HM Customs and Excise finally admitted it had got it wrong.
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Teacake wars: After a 35 year battle, the European Court of Justice ruled that the snacks are not chocolate biscuits
By then M&S had handed over £3.5million in VAT on its teacake sales. The firm went to court in 1996 to demand its money back.
The Commissioners of Customs and Excise were disputing the size of the final refund on the grounds that 90 per cent of the VAT had been passed on by the store chain to its customers.
Officials offered only £350,000 at first, saying that paying back the full amount would mean "unjust enrichment" for M&S.
In addition, the Commissioners invoked a three-year limit on claims for repayment and decided to hand back just £88,440.
The financial dispute dragged on for 12 years until yesterday's decision by the European Court of Justice that the Treasury should issue a full refund.
Judges in Luxembourg City said traders were entitled to correct application of national VAT rules and had a right to a refund of any tax wrongly charged.
Tony McClenaghan, head of indirect tax at Deloitte accountants, which acted for M&S, said: "This is a sweet victory for M&S, for whom this was as much a matter of principle as about recovering the money."
HM Customs had denied making a mistake even after another European legal case led to the ruling that Jaffa Cakes were cakes and not, as they had been classified, biscuits.
At a hearing last year, an advocate-general at the European Court set out the VAT confusion which triggered the case.
He explained that the supply of food is generally zero-rated for VAT in the UK except for confectionery.
He added: "Biscuits wholly or partly covered with chocolate, however, are regarded as confectionery and taxed accordingly at the full rate."
Reader views (6)
Here's a sample of the latest views published.
M&S would do well to pass this money on as charitable donations rather than declaring a windfall profit, since it isn't rightly their money any more than it was rightly the tax-man's. However, they do deserve plaudits for persistently fighting their corner rather than succumbing to the might of the Revenue.
- Nigel, London
Advice to M and S in some way pass this benefit on to your customers who already pay way over the odds for this sort of product in comparison to the prices charged by other supermarket majors.
- William Grierson, Kimpton, UK
As a consumer of hundreds of these goodies over the years, can I reclaim my share of the VAT back from M&S? I expect I would be expected to produce my receipts!
- Mj, East Anglia
Why should M&S benefit except for some admin costs it was the customers who actually paid the VAT?
- Barry, London
Perhaps M&S will do the decent thing and give the money to charity rather than their shareholders.
- Geoff Acake, London
I take it M&S will pay all the customers back the VAT they were charged.
- Mike Melbourne, Bedford
