Of course the snowballs in question are not the sort that are made out of snow, and if current weather predictions are correct, you will be able to throw until your arms get tired this winter. They are the items made from marshmallow, covered in chocolate and sprinkled with coconut. Given that a tax tribunal has decided that they are similar to cakes, they may well feature as a technical challenge on next years series of the Great British Bake Off.
Before you get carried away and throw a party in order to celebrate this momentous news at which a copious amount of snowballs will be available, not every food product calling itself a snowball is covered by this ruling. A tax tribunal ruled that snowballs created by Lees of Scotland Ltd and Thomas Tunnock Ltd should be classified as cakes and therefore be zero rated for VAT purposes. The tribunal found that a dome of marshmallow coated in any combination of the chocolate, sugar strands, carob, cocoa, and coconut, with or without a jam filling, was zero rated. If a product is called a snowball but does not fulfil these criteria, it may not be zero rated.
Why does this matter to you?
If you are not a manufacturer of confectionary of cakes, you may be thinking that you can learn nothing from this case, but that isn’t true. What this case illustrates is that where VAT is concerned, specific details are vitally important in making all the difference to the VAT liability of a supply. Whether you need to charge VAT on your supplies can make a great deal of difference to your business and can have quite an impact on your bottom line. In the case of one of the above mentioned manufactures, they were entitled to a £2million refund from HMRC as a result of winning the tribunal. With that amount of money, you could certainly buy a lot of snowballs!
Most businesses that make mistakes in relation to VAT do so when they are doing something that is unusual for them or that they don’t do very often. Just because something was treated in a certain way for VAT purposes a couple of years ago, it doesn’t mean that it will be correct to adopt that procedure again. HMRC quite often change their policy and new legislation is enacted quite frequently. It’s always best to check.
Our VAT specialists Gill Yates and David Pegg will be happy to help you should you wish to contact them about anything. Tel: 0845 177 5500.