The two companies appealed to the First Tier Tax Tribunal after HMRC decided that their snowball products should be standard rated, overturning a previous decision that they were zero rated. HMRC had justified this change because of a previous Tribunal decision in relation to Swedish snowballs. As part of their appeal, the two companies argued that this Tribunal decision was unsound.
The Tribunal had to decide whether a snowball as made by the two companies had the characteristics that ordinary people would consider to be a cake. In its decision, the Tribunal took into account the ingredients used in the snowball, its manufacture, unpackaged appearance, taste and texture, circumstances of consumption, packaging and marketing.
In relation to Swedish snowballs, the Tribunal said that ‘although the name is the same, the ingredients, the cooking process and the shelf life of these snowballs are completely different’.
It emerged during the hearing that, after an HMRC officer had distributed Lees’ product among the local staff, a survey indicated the majority of these HMRC staff believed that snowballs were cakes. The Tribunal agreed and, in its written decision, concluded that: ‘A snowball looks like a cake. It is not out of place on a plate full of cakes. A snowball has the mouth feel of a cake. Most people would want to enjoy a beverage of some sort whilst consuming it. It would often be eaten in a similar way to cakes; for example to celebrate a birthday in an office. We are wholly agreed that a snowball is a confection to be savoured but not whilst walking around or, for example, in the street. Most people would prefer to be sitting when eating a snowball and possibly, or preferably, depending on background, age, sex etc with a plate, a napkin or a piece of paper or even just a bare table so that the pieces of coconut which fly off do not create a great deal of mess. Although by no means everyone considers a snowball to be a cake we find that these facts, in particular, mean that a snowball has sufficient characteristics to be characterized as a cake.’
Jim Burberry, VAT partner at Baker Tilly in Scotland, said: ‘HMRC might have thought that the appellants didn’t have a snowball’s chance in hell of winning their case, but they were wrong. This is a victory for two of Scotland’s premier confectionery manufacturers, and a victory for cake lovers everywhere.’
Other products that HMRC consider are zero rated include meringues, teacakes and Jaffa cakes.