Teacake set to cost taxman £3.5m

The UK Treasury is facing a £3.5m bill, because of Value Added Tax 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.



UK tax officials acknowledged that chocolate teacakes had been wrongly classed as biscuits in 1994, prompting M&S to launch a legal battle to have the wrongly-paid VAT returned.

Under UK tax rules, most traditional bakery products such as bread, cakes, flapjacks and Jaffa Cakes are free of VAT, but the tax is payable on cereal bars, shortbread and partly-coated or wholly-coated biscuits.