It’s a £3.5m question: “Is a teacake a biscuit or a cake?”
Marks & Spencer has finally resolved its 13-year legal tussle over the tax status of its teacakes, when the House of Lords said HM Revenue & Customs should repay tax claimed from the retailer in full.
In Marks and Spencer v HM Commissioners of Customs and Excise [2009] UKHL 8, the law lords last week reaffirmed an April 2008 ruling by the European Court of Justice that the Revenue should repay the full amount.
The dispute arose over the tax status of teacakes. M&S argued that its chocolate covered teacakes were incorrectly treated by the commissioners as subject to standard-rate VAT as chocolate covered cakes instead of being zero-rated as chocolate-covered biscuits, between 1973 and 1994. As M&S sold a lot of teacakes, the discrepancy accounted for £3.5m in tax that may have been incorrectly paid.
The commissioners then admitted their mistake, but refused to pay the full amount back. Instead, they offered 10%, and resisted the remaining 90% on the basis the burden of the tax had already been passed on by M&S to its customers, therefore were they to hand over the full repayment, M&S would be unjustly enriched.
Gary Harley, head of indirect tax at KPMG in the UK, said: “This decision was not unexpected in light of the very clear steer given by the ECJ. Although the Revenue could have taken matters further by asking the national court to explore whether there were other ways to remedy the inherent discrimination in our law, apart from repaying claims by payment traders in full, and whether M&S marketed similar goods to the repayment traders who were paid their teacake claims in full, they have taken the very sensible decision to draw a line under this litigation. Accordingly, the House of Lords’ judgment is very short, and ‘to the point’.”
