Marks and Spencer has won its 12-year fight with HMRC over VAT on chocolate teacakes.
The European Court of Justice ruled that the retail giant was entitled to a refund of £3.5 million from the taxman, after acknowledging that the sweet snacks in question were tax-free cakes, and not taxable biscuits.
However, the decision that M&S wrongfully paid VAT on the marshmallow-filled goodies was only in principal, and the British courts have been left to make the final judgment — although the House of Lords is expected to agree with the Luxembourg-based European court.
HMRC acknowledged that chocolate teacakes were erroneously classed as biscuits in 1994, but they argued that a refund would lead to 'unjust enrichment' of M&S, because 90% of the VAT charge had already been passed on by the retailer to its customers.
The Revenue claimed that only 10% of the VAT was refundable, and it also attempted to have enforced a three-year time limit on tax rebates, returning only £88,400.
Marks and Spencer's side of the argument, first made in 1995, was that such a claim had not been made by the taxman against its supermarket competitors on the subject of VAT on chocolate teacakes.
The HMRC plea for a time limit was ruled by the judges in Luxembourg to be incompatible with EU laws, and they said that Marks & Spencer had been treated in a discriminatory fashion by the Revenue.
The department refused to comment on the European court decision, saying only: 'This is a very complex judgment on which it would be premature to make any comment until the House of Lords has handed down its judgment'.
