Marks & Spencer has won a 13-year tax battle over the status of its chocolate-covered teacakes, although there is still confusion around the legal ruling.
The Law Lords upheld a decision made by the European Court of Justice (ECJ) last year, which ordered the Treasury to refund £3.5m VAT on the teacakes, taken between 1973 and 1994.
Under UK tax rules, most traditional bakery products, such as bread, cakes and flapjacks, are free of VAT.
But Damian Shirley, tax director at legal firm Eversheds, said that although the issue of classifying teacakes had been resolved, it still left open the complex issue of ‘unjust enrichment’, where one party is unjustly enriched at the expense of another – for example, if a baker had incorrectly accounted for VAT on the sale of freshly baked warm pasties, or where VAT had been incorrectly accounted for in full on the supply of ‘meal deals’.
“It would be very difficult to imagine a generic position being taken by Customs on the issue of unjust enrichment,” said Shirley.