http://www.suite101.com/content/food-trivia---why-are-jaffa-cakes-not-a-biscuit-a277283
"Is a Jaffa Cake Technically a Cake or a Biscuit?
This is the interesting part of the debate and relies on the technical definitions of cakes and biscuits, as well as a reference to UK taxation laws. Ultimately the Jaffa Cake may be seen as the pinnacle of tax avoidance exercises in the confectionary industry. Under UK tax laws, historically neither cakes or biscuits were subject to sales tax (VAT) however, chocolate covered biscuits are regarded as a luxury item and thus subject to sales tax. As such it is in the interest of the producer to have the product declared a cake rather than a chocolate covered biscuit, thus avoiding the payment of sales tax.
In order to settle the debate, one must now consider the distinction between a cake and a biscuit. Here the classical argument made is that under ordinary circumstances a cake will, if left exposed to the atmosphere go hard over time. Conversely a biscuit if left exposed, will show an opposite trend and turn soft. Mcvities used this distinction in a tribunal hearing presided over by Potter QC, the result of which is that to this day Jaffa Cakes are VAT free. As such this confirms that the humble Jaffa Cake is a cake and not a biscuit."
legally settled.