M&S teacake to 'cost taxman millions'

An argument involving the VAT imposed on Marks and Spencer's teacakes could cost the taxman up to £3.5 million.

For 20 years customers of the store have being paying VAT on teacakes which were wrongly classified as biscuits.

Had the product been classed correctly, as a cake, the addition of VAT would not have been necessary.

A ruling today by the European Court of Justice (ECJ) confirmed that the retailer had paid too much tax; however, since the VAT was actually paid by its customers the ECJ said the final decision on the matter would be left to the British courts.

Commenting on the case, a Marks and Spencer spokeswomen said: "We're optimistic that the House of Lords will now find in our favour and hope that this will conclude the matter and draw a line under this protracted litigation."

According to HM Revenue & Customs, baked goods such as bread, rolls, cakes, flapjacks and gingerbread are in the "zero-rated" VAT band.