HMRC loses Scottish snowball fight

2 July 2014

A recent First Tier Tax Tribunal Hearing (FTT) resulted in the decision that Snowballs made by Lees of Scotland Ltd and Thomas Tunnock Ltd were cakes and should be zero-rated.

The FTT considered the nature of Snowballs – described on the Tunnock’s website as soft marshmallow, fully coated in chocolate flavoured coating, sprinkled with coconut – and decided that these ingredients, along with the appearance, flavour and consistency, were those of a cake. Another FTT hearing had ruled that Swedish Snowballs were not cakes and should be standard-rated and differences between these two varieties of Snowballs were highlighted during the more recent hearing. For the uninitiated Swedish Snowballs can be described as vanilla and nut flavoured cookies, which are rolled in sugar.

The FTT in Edinburgh concluded that ‘A snowball looks like a cake. It is not out of place on a plate full of cakes. A snowball has the mouth feel of a cake. Most people would want to enjoy a beverage of some sort whilst consuming it. It would often be eaten in a similar way to cakes; for example to celebrate a birthday in an office. We are wholly agreed that a snowball is a confection to be savoured but not whilst walking around or, for example, in the street. Most people would prefer to be sitting when eating a snowball and possibly, or preferably, depending on background, age, sex etc with a plate, a napkin or a piece of paper or even just a bare table so that the pieces of coconut which fly off do not create a great deal of mess. Although by no means everyone considers a snowball to be a cake we find that these facts, in particular, mean that a snowball has sufficient characteristics to be characterised as a cake.’

During the hearing, it was reported that an HMRC officer had given Lees’ Snowballs to a number of HMRC staff and a poll of these individuals resulted in a majority giving the opinion that the Snowballs were indeed cakes. I suspect that had the hearing been in, say, Southern England, there would have been a different outcome and Snowballs may have been recognised as confectionary and standard-rated.

If you have doubts about whether what you’re selling should be standard-rated, zero-rated or exempt for VAT purposes, contact us and we’ll help you come to a decision supported by previous cases where appropriate, so that, should HMRC start throwing snowballs, you’ll still be able to have your cake and eat it!