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Marks & Spencer has claimed final victory in its long-running battle with HMRC over chocolate teacakes.
The House of Lords yesterday published its decision on the VAT case that began when the retail giant moved to have the marshmallow-filled snacks categorised as zero-rated cakes, rather than standard-rated luxury biscuits.
From 1996, after the taxman had accepted that the teacakes should not be subject to VAT, the matter for debate was one of unjust enrichment.
The Revenue argued that 90% of the VAT charge had already been passed on by M&S to its customers, and as such the department store should only receive a 10% tax rebate of £350,000.
In April last year, however, the European Court of Justice (ECJ) ruled that the retailer was entitled in principal to a full rebate of £3.5 million from the Revenue, which withdrew from the case as it was being considered by the Lords.
David Milne QC of Pump Court Tax Chambers appeared for Marks & Spencer in the company’s legal fight with the taxman.
‘Whether M&S will be entitled to compound interest dating back to 1973 will depend on the result of three [forthcoming] test cases, the first of which is due to be heard in the High Court next week,’ he said.
Mr Milne then highlighted the fact that the case was about ‘a defect in UK law [that was corrected in] 2005, which the ECJ said discriminated against M&S in favour of rivals whose main supplies were of zero-rated food’.
He added: ‘This could only be put right for the past by repaying M&S’s claim in full, so as to restore the level-playing field between [the company] and its rivals’.
HMRC said only that ‘the House of Lords judgment only relates to the invocation of the unjust enrichment defence in relation to claims made before 26 May 2005. It does not relate to claims made on or after that date. A Revenue and Customs Brief on the judgment will be published in due course’.
