Cake or Sandwich? HMRC Takes on M&S Over Strawberries and Cream Creation

Marks & Spencer has recently found itself at the centre of a VAT controversy. The retailer’s limited-edition “strawberries and cream” sandwich, a seasonal addition to its meal deal range, has sparked debate, not only among foodies, but within the halls of HMRC.

M&S insists the product is a sandwich and therefore zero-rated for VAT. HMRC disagrees, arguing that it qualifies as a cake or dessert, which would make it subject to the standard 20% VAT rate. It’s a sweet disagreement with potentially serious tax implications.

Why Are Some Food Items VAT-Exempt and Others Not?

In the UK, VAT law surrounding food is notoriously complex. Generally, most staple foods and cold takeaway items, such as sandwiches, are zero-rated, meaning they are exempt from VAT. However, certain categories of food, including confectionery, ice cream, sweetened baked goods, and desserts, are subject to VAT at the standard rate.

These distinctions are not always clear-cut. In fact, legislation from the 1980s includes a specific clause covering “sweetened prepared food eaten with the fingers,” giving HMRC the discretion to tax products that resemble desserts or confectionery, even if their appearance blurs the lines.

So What Is the M&S Product, Really?

The item in question is made with soft bread, strawberries and sweetened cream. From M&S’s point of view, it is a cold sandwich that forms part of a lunch offering, sold alongside more traditional options. By that logic, it qualifies for zero-rating.

HMRC sees it differently, however. With its sugary bread and dessert-style filling, it argues the product is a sweet treat, closer to a cake or dessert, and should therefore be taxed. According to HMRC’s definitions, if a food item contains substantial sweetening and is meant to be eaten with the fingers, it may be liable for VAT.

This echoes earlier disputes, such as the long-standing Jaffa Cake case or the debate over marshmallows, where the final decision rested on how the product was consumed, its ingredients, and its intended use.

Why This Matters to Businesses

Although it may sound like a quirky PR story, this case highlights a very real risk for businesses: misclassifying your products can lead to serious VAT liabilities. If HMRC is successful in reclassifying the sandwich, M&S could be required to pay VAT on all sales of the item, potentially cutting into margins or leading to a price increase.

More broadly, this case serves as a reminder of how nuanced and sometimes ambiguous VAT law can be. For food producers, retailers, and hospitality businesses, ensuring correct VAT treatment isn’t just a compliance task - it’s essential to protecting profit and avoiding disputes.

Need Help Navigating VAT Rules?

If your business deals with food or borderline products, now is the time to review your VAT treatment. At Highway 61, our team of VAT specialists can help you interpret HMRC’s guidance, assess your risk, and ensure you’re applying the correct rates.

Get in touch today for clear, tailored advice on VAT and peace of mind for your business.