Coconut snowball tax melts away
The two companies appealed to the First Tier Tax Tribunal after Her Majesty’s Revenue & Customs (HMRC) decided the snowball products should be standard rated, overturning a previous decision allowing them zero-rated status.
HMRC had used a tribunal decision in relation to Swedish snowballs to justify its stance. As part of their appeal, the two companies argued that this decision was unsound.
The tribunal had to decide whether ordinary people would consider a snowball as made by the two companies to have the same characteristics as cakes.
In its decision, the tribunal took into account the ingredients used in the snowball, its manufacture, unpackaged appearance, taste and texture, circumstances of consumption, packaging and marketing.
Swedish snowballs ‘completely different’
In relation to Swedish snowballs, the Tribunal said that “although the name is the same, the ingredients, the cooking process and the shelf-life of these snowballs are completely different”.
It emerged during the hearing that, after an HMRC officer had distributed Lees’s product among the local staff, a survey indicated the majority of these HMRC staff believed that snowballs were cakes.
The Tribunal agreed and, in its written decision, 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.
‘Characterised as a cake’
“It would often be eaten in a similar way to cakes; for example to celebrate a birthday in an office … 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.”
Commenting on the decision, Jim Burberry, VAT Partner at Baker Tilly in Scotland, said: “HMRC might have thought that the appellants didn’t have a snowball’s chance in hell of winning their case, but they were wrong. This is a victory for two of Scotland’s premier confectionery manufacturers, and a victory for cake lovers everywhere.”
Other products that HMRC consider are zero-rated include meringues, teacakes and Jaffa cakes.
