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Lees of Scotland & Thomas Tunnock v HMRC

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In Lees of Scotland & Thomas Tunnock v HMRC (TC03754 – 25 June 2014), the FTT found that snowballs were cakes.

Both appellants manufactured and sold snowballs. The issue was whether snowballs were ‘food of any kind used for human consumption’ within the scope of VATA 1994 Sch 8 Group 1 or whether they fell within the ‘confectionery’ exception (item no. 2), which itself excludes cakes.

The FTT observed that the question was whether a snowball had sufficient characteristics of a cake to be considered as such by an ordinary person. Based on the authorities, the FTT listed the following factors as relevant: ingredients, process of manufacture, unpackaged appearance, taste and texture, circumstances of consumption, packaging and marketing.

The FTT observed that the manufacturing process for Lees’ snowballs and teacakes was very similar and that they were made on the same production line. As for the Tunnock’s snowballs, HMRC accepted that the only difference between them and teacakes was the grade of chocolate used in the coatings. Furthermore, the snowballs were sold by supermarkets in the cake section and never in the confectionery section.

The FTT found that a snowball looks like a cake, is not out of place on a plate full of cakes and has the mouth feel of a cake. Additionally, most people would enjoy a snowball in the same way as a cake, with a drink, preferably seated with a plate and napkin (although this may depend on age and gender). The FTT concluded that a snowball had sufficient characteristics to be characterised as a cake.

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Why it matters: The FTT observed that this was a ‘fine balancing act’ which turned mainly on questions of facts on the basis of factors extracted from the various authorities. In the absence of an objective test, food manufacturers are likely to be faced with continuing uncertainty.

Issue: 1223
Categories: Cases , Indirect taxes , VAT