When is a brownie not a brownie?

Feb 04, 2019

When it’s a cake. A recent First Tier Tribunal case decided that the sweet treats produced by this taxpayer were not biscuits for VAT purposes but cakes, making them zero-rated.

Under UK VAT legislation, no VAT is charged on plain biscuits or cakes. But when a biscuit is covered in chocolate it becomes a luxury under VAT rules and standard rate VAT at 20% is added to the price. This case is just another in a series over the years where the VAT treatment of Jaffa cakes, tea cakes and other treats have been closely examined.

On a broad basis, chocolate chip biscuits where the chips are in the dough or pressed into the surface before baking are zero-rated. Bourbon and other biscuits with a chocolate sandwich layer between two halves also escape VAT. However, if your biscuit is wholly or partly coated in chocolate then VAT applies at the standard rate. And at Christmas time, if your gingerbread person comes with more than just two dots for eyes, 20% VAT may have been added to the price. It is not yet clear if HMRC will appeal this decision..