Scottish confectioners Lees of Scotland and Tunnock’s will receive windfall tax rebates after the firms’ snowball products were ruled to be tax exempt cakes by a UK court.
A First-Tier Tribunal in the UK accepted the firms’ appeals and found that snowballs were not confections taxed at standard rate and were instead cakes that were zero rated.
Lees will receive a £2m ($3.4m) tax rebate and Tunnock’s will be issued £806,000 ($1.4m) by the UK tax authority Her Majesty’s Revenue & Customs (HMRC).
‘Looks like a cake’
To assess whether an ordinary person would consider snowballs to be a cake, the court was presented a plate of cakes including Jaffa Cake, Mr Kipling Bakewell Tart and tea cakes as well as snowballs manufactured by both firms.
“A snowball looks like a cake,” said Judge Anne Scott. “It is not out of place on a plate full of cakes. A snowball has the mouth feel of a cake.”
She added that most people would prefer to be siting when eating a snowball because pieces of coconut fell off and created a great mess.
Escapes confectionery tax
The court head that snowballs used similar ingredients and manufacturing processes to teacakes and were always sold in the cake or biscuit aisle. The snowballs on the plate also hardened after a few hours.
“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 characterized as a cake.”
The ruling means snowballs will no longer be taxed as confectionery.
UK tax rates
In general, HMRC does not tax foods, but levies do exist for certain products including confectionery, alcoholic drinks and savory snacks, which are all taxed at the standard VAT rate of 20%.
Confectionery is defined as “items of sweetened prepared food which is normally eaten with the fingers”.
Tunnock’s produces only its own branded snowballs. Lees produces snowballs for supermarket customers such as Asda and under its own brand.