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What is VAT?

Value added tax (VAT) was introduced in 1973 in the United Kingdom. This tax is controlled and collected by HM Revenue and Customs (HMRC), mainly under the VAT Act 1994. VAT is payable on most products and services offered by registered companies in the United Kingdom, and is also applicable on certain goods and services imported from outside the European Union. The standard Value Added Tax rate, since 4-Jan-2011, is 20%. Certain products and services are subject to reduced VAT rate of 5% (such as domestic fuel) or even 0% on certain items like food and children's clothing

VAT rates for goods and services

Rate category Percentage (%) of VAT VAT applicable for
Zero-rate VAT products 0%
  • Articles such as clothes for children and certain foods and biscuits
Reduced rate VAT products 5%
  • Articles such as car seats for children and home energy products
  • Other products encompass smoke termination products; sanitary safety products; mobility assistance for the old maternity pads; materials to save energy (fixtures in residential/charity premises)
Standard rate VAT products 20%
  • Maximum good and services including water (used for industrial purpose); tolls for tunnels & roads (operated privately), bridges; taxi fares; stationery; salt (non-culinary); road fuel (petrol/diesel); prams & pushchairs; potato crisps; postal services (like licensed operators and royal mail); nuts (shelled, roasted/salted); ice cream; hot take-away food & drinks (including toasted sandwiches, burgers, hot dogs); fruit juice & other cold drinks (not milk); food & drinks offered for consumption on the premises (at cafes, restaurants etc.); heating oil & solid fuel, electricity, gas; electrical goods; delivery charges (postage & packaging); confectionery/sweets; clothes & footwear (not for children below 14 years of age); chocolate; cereal bars; CD, DVD, video games, & tapes; carbonated (fizzy) drinks; calendars & diaries; bottled water (including mineral water); biscuits (chocolate covered only); alcoholic drinks

VAT on bakery items as cakes or biscuits

Even though most traditional bakery products, such as biscuits, bread, and cakes, are zero-rated i.e. no VAT is charged, some confectionery items are standard-rated comprising:

  1. Biscuits completely or partially covered in chocolate (or a similar product in appearance and taste
  2. Any product of sweetened prepared food, apart from non-chocolate biscuits and cakes, which is typically eaten with fingers
Guide on Charging VAT's on Cakes or Biscuits

Additionally, biscuits are essentially cakes – as stated by Her Majesty's Revenue and Customs (HMRC) – and VAT free. For example, the Jaffa Cake, a biscuit-sized cakes launched by McVitie and Price in 1927 in the United Kingdom is clearly a biscuit, since it is typically kept in the biscuit aisle in shops. However, as it is coated with chocolate, the Jaffa Cake attracted VAT until a court of law, in the end, ruled in the favour of its manufacturer, McVitie

Certain bakery products that are VAT exempt:
  • Chocolate spread
  • Chocolate chips
  • Chocolate cups
  • Chocolate body paint
  • Éclairs’
  • Edible cake decorations
  • Flapjacks
  • Lebkuchen
  • Liquid chocolate icing
  • Marshmallow teacakes
  • Meringues
  • Mini-buttons
  • Pastries
  • Scottish snowballs
  • Sponge cakes
  • Sweet-tasting dried fruit which are sold as snacks and for home baking
  • Toffee apples
Certain bakery products that are not VAT exempt:
  • Bars of chocolate
  • Bubble gum
  • Candy floss
  • Chewing gum
  • Chocolates
  • Gums
  • Fruit or nuts with a coating such as chocolate
  • Lollipops
  • Marshmallow
  • Pastilles
  • Sherbet
  • Sweetened popcorn
  • Sweets
  • Turkish delight

Bakery products (as cakes or biscuits) and their VAT liabilities

Zero-rated Value Added Tax products Standard-rated Value Added Tax products
  • Bread and bread products, for example, baps, rolls, and pitta bread
  • Certain products provided as part of a hot take-away meal
  • These include hot kebab in a pitta, hamburger in a bun etc.
  • Cakes comprising celebratory cakes such as an anniversary, birthday, or wedding cakes, fruit cakes, sponges
  • Cakes supplied in the course of catering
  • Flapjacks and slab gingerbread
  • Cereal, muesli and alike sweet tasting bars
  • Marshmallow teacakes (with a cake base or crumb biscuit topped with marshmallow coated in either coconut or sugar strands or chocolate)
  • ‘Snowballs’ without a cake base are classed as confectionery
  • Crunch cakes – corn flakes or any different breakfast cereal item coated in carob or chocolate and pressed into hard flat cakes
  • Florentines
  • Caramel or shortcake containing a base of shortbread topped with a coating of caramel and chocolate
  • Shortbread biscuits wholly or partly chocolate-covered
  • Lebkuchen
  • Coconut ice

Also Read: HMRC VAT Return Online

VAT‘s on Cake Decorations

If a baker sells uneatable cake beautifications with a cake, such as wedding cakes with bride and groom figures, a baker does not have to consider the supply as a mixed supply and calculate VAT on the beautification except it is obviously a distinct article in its own right – for instance a toy given as ornament on a child’s birthday cake which is undoubtedly intended to be played with post eating the cake. Below mentioned are certain examples of typically found articles used as cake decorations:

Zero-rated Value Added Tax products Standard-rated Value Added Tax products
  • Chocolate coverture, leaves, chips, scrolls etc. (prepared precisely as cake beautifications)
  • Chocolate buttons (except packets of mini-chocolate buttons sold for use in baking)
  • Jelly shapes, sugar flowers, leaves etc. prepared explicitly as cake beautifications
  • Chocolate flakes (except when they are offered within the ice cream and bakery industries, where they may be zero-rated if sold in packs and labelled as for use as cake decorations only: not for retail sale)
  • Cherries used in baking
  • Hundreds and thousands, vermicelli and sugar strands
  • Royal icing
  • Toasted coconut and toasted almonds held out precisely for baking use
  • Any other items which are sold in the similar form as confectionery
  • Edible cake beautifications whether sold as part of a cake or sold separately unless they fall within the exceptions relating to confectionery
  • Inedible cake beautifications sold on their own

VAT‘s on Biscuits

Biscuits covered or partly covered in chocolate or specific other products related in taste and form of chocolate are standard-rated. Below are some examples to help regulate whether a product is zero or standard rated:

Zero-rated Value Added Tax products Standard-rated Value Added Tax products
  • Bourbon and other biscuits where the chocolate or similar product forms a sandwich layer between two biscuit halves and is not continued onto the outer surface
  • Chocolate covered shortbread
  • Chocolate chip biscuits where the chips are either included in the dough or hard-pressed into the surface before baking
  • All wholly or partly coated biscuits including biscuits decorated in an arrangement with chocolate or some similar product
  • Jaffa cakes
  • Gingerbread decked with chocolate unless this amounts to no more than a couple of dots for eyes
  • Biscuits coated with caramel or some other product that does not resemble chocolate in appearance and taste
  • Ice cream wafers partly covered in chocolate such as chocolate oysters

Also Read: VAT Payment Deadline Calculator

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