When you’re traveling through Europe and you’re looking for that perfect dessert to satisfy your sweet tooth, you might want to think twice when considering your options. In the U.K., bakery products like bread, biscuits and cakes are considered essential items, therefore are zero-rated, meaning they have a 0 percent VAT rate. However, if that biscuit is fully or partially covered in chocolate, it’s considered a luxury item and is subject to the standard VAT rate. But there is some good news: you won’t pay the VAT if your dessert has the chocolate chips included in the dough or pressed into the surface before baking.
Unfortunately, gingerbread men (and women) in the biscuit world are judged on their appearance. Gingerbread people that only have chocolate for eyes are considered zero-rated. However, if your gingerbread person is dressed in chocolate icing pants, the standard VAT rate will be applied to the cost.
Visit ICAEW to find out how some of your other favorite bakery treats are taxed.