With just over two weeks to go until the Budget, the City is patiently waiting to find out what taxes the Chancellor might hike to plug the so-called £22bn black hole.
But while rumours swirl of potential hikes to Capital Gains Tax and the employer National Insurance rate, one top tax lawyer has said the government should look elsewhere instead of targeted business-related taxes.
His suggestion: Cake.
Glyn Edwards VAT director at MHA, the UK arm of Baker Tilly, has suggested that the Chancellor should “get rid of the decades old famous anomaly that allows Cakes to be exempt from VAT”.
According to HMRC, cakes are zero-rated for VAT, which has resulted in eye-catching cases, including when the maker of Jaffa Cakes labelled the chocolate orange treat as a cake rather than a biscuit.
Fortunately for its owners, McVitie’s, Jaffa Cakes were deemed to be cakes due to their texture and ingredients, and as a result manages to avoid the 20 per cent VAT that applies to biscuits.
While an entertaining tax case, Edwards said that the Chancellor should be looking at cakes more closely for the upcoming Budget.
He explained that “it was recently estimated that the UK consumes about £3.2bn worth of cake each year”. He noted that an update to the VAT code “would raise £640m for the Exchequer”.
“Assuming cake consumption holds up and we don’t all start eating carrots instead,” he added.
Another proposal from Edwards for boosting the government’s coffers would be to target the fast food market.
In Britain, this market was valued at £13.4bn in 2022 and is estimated to be worth £17bn by 2026.
He explained that “VAT is already charged on hot food delivery at the standard rate (although not ice cream)”.
He added that by “raising the 20 per cent rate to 25 per cent would presumably encourage a more healthy lifestyle and raise £850m in extra revenues for the Treasury.”
Edwards pointed out that combining these two options “would actually raise more money than the controversial VAT on private school fees, which according to the Institute for Fiscal Studies (IFS) is between £1.3bn and £1.5bn“.
Recently, teaching unions have urged the government to delay the roll out of private schools having their fees subject to 20 per cent VAT amid fears of job losses.
Finally, the tax adviser put caviar under the lens, noting that the expensive delicacy has always been exempt from VAT as it’s listed as zero-rated by HMRC.
Edwards point was that “assuming all the Caviar consumers haven’t already fled the country over concerns about other punitive measures being introduced in the Budget, this is surely a product that the Chancellor should be looking to introduce VAT on”.
He explained: “There are no reliable figures on the size of the UK market, but Fortnum & Mason advertise a 500g tin of Beluga caviar for £3500.
“VAT would add £700 to the price, but surely this would fit in with Labour’s idea of ‘the broadest shoulders bearing a bigger burden’.”