Are You Eating Luxury Biscuits with VAT Added?

6 June 2017, 12:36

Do you eat plain biscuits? If you do, you’ve probably noticed they are a lot cheaper than many of the posher biscuits on the market today. If you are partial to a chocolate biscuit or two, chances are you pay more for the privilege of buying them. Now, you might think the price would go up because of the added ingredients. You would be correct, to an extent. But there is also the matter of VAT to consider.

Chocolate is required to have VAT added to it, although that is not enough to confirm the requirement for VAT to be paid on chocolate biscuits. That’s because it depends whether a biscuit is deemed to be a luxury or not. Chocolate biscuits usually are, and that is why the standard 20% VAT rate is applied to products like this.

You may have heard of the Jaffa Cake case that came to court a while back that showed us just how complex these rules can be. Plain biscuits don’t incur VAT, as we already know. Neither do plain cakes. But HMRC believed that Jaffa Cakes were biscuits. Fortunately for us (and for McVities, we suspect), the case was found in their favour. They do have a small cake base, of course, and the orange bit is found between this and the chocolate top. So, it is a cake, and therefore does not incur VAT. We might eat them more as biscuits rather than cakes, but they have remained cheaper to buy purely because McVities won the argument about their cake or biscuit status. Had they lost, we would have been paying more for the Jaffa Cakes than we currently do.

In many cases where chocolate is involved in the creation of a biscuit, it’s the position of the chocolate that determines whether it is a plain biscuit or a luxury biscuit – and therefore whether it is VAT-liable or not. Chocolate chips are fine, as are chocolate layers in the middle of two biscuits. But if you choose a biscuit that is enrobed in chocolate, or has a chocolate covering over it, and you are likely to be paying VAT on it – hence the higher price you’ll no doubt see on the shelf.

While we as consumers don’t worry too much about these rules, they do impact us in our pockets. So, the next time you go shopping, look at the prices for various biscuits and how those biscuits are made. Chances are, you’ll spot which ones likely have VAT added to the sales price, and you will see why this is the case. Choose wisely, and you can still enjoy some chocolate biscuits without VAT added on top.