One of the more high profile announcements in this year’s budget concerned changes to the VAT rate of sales of certain take-away foods. The “pasty tax”, as it was quickly dubbed, became a political football, with MP’s of all persuasions falling over themselves to be seen and photographed coming out of the local bakers with their lunch.
Indeed, recent announcements suggest that the proposed changes are to be watered down and although there is nothing “official” in terms of what the new rules will be just yet, this is potentially very welcome news for many within the industry.
The original changes were badged up as part of a drive to address “borderline anomalies”, with the seemingly honourable intention of either “simplifying” or “clarifying” the existing rules, many of which have remained largely unchanged since VAT was introduced in the UK back in the early Seventies.
However, not surprisingly, in their efforts to level the playing field HMRC are seeking to extend the tax take by adding VAT to previously VAT-free sales. Levelling the playing field maybe, but only in their favour.
Under the current rules the supply of food is VAT-free (zero-rated), but there are a long list of exceptions, including “a supply of anything in the course of catering”. Catering includes “hot food” supplied for consumption off the premises, with this being further defined as food which has been heated specifically for the purposes of being sold and consumed at a temperature above ambient air temperature.
The original proposals would have meant that if a product is hot (i.e. above ambient air temperature) at the point of sale then VAT will be due. However, it wasn’t difficult to foresee problems with this approach, not least the rather bizarre scenario that some products could potentially be zero-rated on hot days, when the ambient temperature is high, but taxable on cold days, when your sausage roll is slightly warmer than the snow filled streets outside!
The revised proposals are set to centre on whether products are deliberately kept hot for future sale, eg with the use of a hot cabinet, with the suggestion being that hot products in the process of cooling down can remain VAT free. However, we are still awaiting formal revised drafting from HMRC, so at the moment there remains a cautious but optimistic sense of anticipation in the (ambient) air.
Notwithstanding the recent pasty tax debate, potentially riding to the rescue of UK businesses is a German sausage seller by the name of Manfred Bog. Mr Bog successfully took a case through the German and European courts arguing that a supply of food (goods) did not become a supply of catering (a service) simply because the products had been heated.
When looking at the rules in the UK there are fairly compelling arguments to suggest that all sales of hot takeaway food should be VAT-free and that HMRC have been wrong to tax these sales historically. Not only could this be good news for those who will be affected by the forthcoming rule change, but also to other vendors of hot takeaway food, including pizza’s, burgers and even teas and coffees.
Further litigation is likely, but in the meantime, given the relevant time limits, we recommend that all businesses involved in the sale of hot takeaway food review their current position and consider submitting a claim for a refund of VAT paid across in the past.