What is the difference between a cake and a biscuit? A question raised in a court case by McVities, makers of Jaffa cakes.
Why was it important
Back in 1991, McVities fought a case to prevent VAT being charged on their product. Chocolate covered biscuits attract the tax, cakes do not. Incidentally, the very fact that VAT is charged does not directly affect the companies profit as the VAT is paid directly to Customs and Excise. (more about this another day). There is an indirect effect in that the cakes are more expensive for the consumer, which would cause a drop in sales.
After much legal wrangling, including the production of a large Jaffa cake, an decision was reached on a test to differentiate between cakes and biscuits. The test is based on happens to a stale Jaffa cake. It was decided that cakes go hard, biscuits go soft. Jaffa cakes go hard therefore it is officially recognised as a cake and consequently zero rated for VAT purposes. As the test is a legal precedent, it is applied to all other similar products.
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