M&S wins tea cake VAT battle

Marks & Spencer has finally emerged as the winner today in an epic legal battle with the VAT man that has dragged on for 13 years. Three law lords today backed a decision by the European Court which should result in a refund of some £3.5m in wrongly paid VAT to the high street giants after the VAT man effectively threw in the towel. The battle has centred on the definition of a chocolate covered tea cake - whether in the eyes of the law it should be classed as a biscuit and therefore be subject to VAT or a cake and therefore exempt from the tax. M&S argued that the tea cakes, which were best sellers for some two decades, were cakes and therefore exempt.The tax man agreed, but argued that as the store had passed included VAT in the price it charged customers, it would be unfair if it received all the VAT back as this would amount to 'unjust enrichment'. However, the European court in April last year rejected the tax man's arguments and ordered them to make a full refund to M&S. And today that decision won the full backing of Lords Hoffman, Scott and Walker who unanimously backed the court's decision.It would still have been open to the VAT man to argue over the European ruling but at the end of one of the longest legal tax battles ever they effectively admitted defeat.
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