The significance of the borderline between
biscuits is that a
cake is zero-rated even if it is
covered in chocolate, whereas a
biscuit is standard-rated if wholly or
partly covered in chocolate or some product similar in taste and
appearance. As set out in the paragraphs above, there is no
generally accepted definition of either
biscuit, but the distinction is usually
clear in practice.
The leading case on the borderline is that concerning Jaffa cakes: United Biscuits(LON/91/0160). Customs and Excise had accepted since the start of VAT that Jaffa cakes were zero-rated as cakes, but always had misgivings about whether this was correct. Following a review, the department reversed its view of the liability. Jaffa cakes were then ruled to be biscuits partly covered in chocolate and standard-rated: United Biscuits (as McVities, one of the largest manufacturers of Jaffa cakes) appealed against this decision. The Tribunal listed the factors it considered in coming to a decision as follows.
Taking all these factors into account, Jaffa cakes had
characteristics of both cakes and biscuits, but the tribunal
thought they had enough characteristics of cakes to be accepted as
such, and they were therefore zero-rated.
An earlier case, that of Adams Foods Ltd (MAN/83/0062) which concerned Chocolate Dundees, a traditional type of shortcake with a chocolate base and individually wrapped for sale, came to the opposite conclusion. The decision contains a useful, if technical, table of comparative differences between cakes and biscuits, provided by an expert witness, and the tribunal was unable to see any factors supporting a view of the product as cake. It was ruled to be a biscuit partly covered in chocolate and accordingly standard-rated.