Persistence pays off in the battle of the teacakes

M&S does not give up without a fight – in 1995 they claimed a refund of £3.5m in VAT payments that they had wrongly been charged by the Inland Revenue on their chocolate covered teacakes between 1973 and 1994. The rules over which cakes and biscuits are zero-rated for VAT are rather intricate (see the list here); usually VAT would be payable on a chocolate covered variety, but in this case they are zero-rated because they have ‘crumb, biscuit or cake base’. This was agreed in 1994, but the Commissioners of Customs and Excise refused to refund 90% of the tax to M&S because they said only the company would benefit from it, not the customers. After 13 years, M&S’s claim has been taken to the European Court of Justice who upheld it, and the decision this week by three Law Lords not to challenge means they will finally benefit from the full repayment.

But, given the size of the government’s budget deficit, where will the money come from?