Teacake set to cost taxman £3.5m

Teacake set to cost taxman £3.5m

Chocolate teacakes were wrongly classed as a biscuit for two decades

The UK Treasury is facing a £3.5m bill, because of VAT wrongly imposed on a Marks and Spencer teacake, the European Court of Justice (ECJ) has ruled.

Customers paid VAT for 20 years before the authorities accepted the product was a cake, which does not command VAT.

Marks & Spencer (M&S) has won a 13-year legal battle over the UK tax status of its chocolate-covered teacake.

M&S took action against the taxman, who charged £3.5m VAT on teacakes between 1973 and 1994, after having them wrongly classified as biscuits.

UK tax officials recognised the teacakes had been wrongly classed, but refused to pay back all the wrongly charged VAT that M&S had paid.