Everyone will remember the Jaffa Cakes case where McVities actually managed to come on top in its fight with HMRC. No VAT is charged on plain biscuits or cakes. But when a biscuit is covered in chocolate it becomes a luxury and standard rate VAT at 20% is added to the price. Mcvities, the market leaders for Jaffa Cakes added chocolate to the cake and tangy orange base, so classifying them as cakes, not biscuits. Although the taxman challenged this, claiming chocolate biscuit status, the court ruled in favour of McVities and we don’t have to pay VAT on our Jaffa Cakes.
As a reminder, chocolate chip biscuits where the chips are included 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 will be added at the standard rate. The situation is even more complex for Gingerbread biscuits. No VAT is charged for gingerbread with just two chocolate spots for eyes. However, if your gingerbread man is dressed with any chocolate-based additions, such as trousers, 20% VAT will be added.
