M&S loses appeal in battle over teacake tax

The VAT man has taken a bite out of Marks&Spencer profits after winning a multimillion-pound Appeal Court battle over the tax status of the humble English teacake.

The high street chain claimed in 1995 that for more than 20 years, between April 1973 and October 1994, it had wrongly accounted for VAT on sales of teacakes as a result of an error by suppliers and erroneous advice from the Commissioners of Customs and Excise.

It sought repayment of £3.5 million after the commissioners accepted the teacakes should have been zero rated.

But because so long had elapsed the commissioners told M&S it could only have 10 per cent of its tax back - £88,440 - capped for three years plus interest.

The commissioners claimed the store would have passed on and recovered the excess tax in the price of the teacakes. M&S denies this. The case has been before several courts.

An M&S spokeswoman said they had recovered some of the tax along the way, but were still owed about £6 million. They have yet to decide whether to pursue the matter.