Who knows when the British press are likely to get excited by VAT? But following the Budget they’ve been truly salivating at the prospect of a “Pasty Tax” and all the class issues that this throws-up Link to one of many articles in the Daily Mail
Regular readers will know that VAT on food can be a minefield due to numerous historical attempts to challenge where the line should be drawn on how the 0% rate and 20% rate apply to food. As a lover of FACTs, here’s my attempt to clarify what’s really going on with the VAT change. And if indeed this is a change at all...
The basics. The law as is now (and has been for years) separates food (generally at 0% VAT) from catering (at 20% VAT). In an attempt to clarify what catering means the legislation states that catering includes hot food “heated for the purposes of enabling it to be consumed at a temperature above the ambient temperature”.
Where do you draw the line? The historical point of challenge has been around the “purpose of enabling” something to be eaten hot. For some foods the line is obviously clearer than others e.g. soup which people normally like to eat hot. For others it is less obvious and a whole load of cases have reached the UK courts with varying success:
WIN: The Great American Bagel Factory successfully argued that its bagels were not toasted to be hot but to “create a crunchy interior to the bagel and to promote freshness”.
WIN: The Lewis Group (supermarkets) managed to convince the Tribunal that its roast chickens were not supposed to be eaten hot but were simply kept hot to comply with hygiene requirements. And...
DEFEAT: Domino’s Pizza was rumbled by its own advertising “delivery while hot” whilst attempting to claim that its pizzas were only hot due to baking and not to enable them to be eaten hot.
And perhaps most importantly...
WIN: It was agreed that whilst Lutron Ltd sold Cornish parties which were often hot when purchased, the intention was solely to have them freshly baked, and the pasties were not deliberately kept warm after heating. Hence we have the zero-rated pasty!
There are many many more cases, and it’s kind of easy to see how the tax man was getting a little fed up with people trying it on. Therefore the change, with the new law simply stating that “hot food” means food “which is above the ambient air temperature at the time it is provided to the customer”. And once it’s written down it almost sounds obvious.
So the Pasty Tax isn’t even a new law, it’s a tinkering with an old one, but a tinkering with some significant effect. One thing the new wording specifically excludes from hot food is “freshly baked bread”, and so I guess the Tribunals can expect a loaf of fresh cases on what constitutes bread. Watch this space...
WIN: The Great American Bagel Factory successfully argued that its bagels were not toasted to be hot but to “create a crunchy interior to the bagel and to promote freshness”.
WIN: The Lewis Group (supermarkets) managed to convince the Tribunal that its roast chickens were not supposed to be eaten hot but were simply kept hot to comply with hygiene requirements. And...
DEFEAT: Domino’s Pizza was rumbled by its own advertising “delivery while hot” whilst attempting to claim that its pizzas were only hot due to baking and not to enable them to be eaten hot.
And perhaps most importantly...
WIN: It was agreed that whilst Lutron Ltd sold Cornish parties which were often hot when purchased, the intention was solely to have them freshly baked, and the pasties were not deliberately kept warm after heating. Hence we have the zero-rated pasty!
There are many many more cases, and it’s kind of easy to see how the tax man was getting a little fed up with people trying it on. Therefore the change, with the new law simply stating that “hot food” means food “which is above the ambient air temperature at the time it is provided to the customer”. And once it’s written down it almost sounds obvious.
So the Pasty Tax isn’t even a new law, it’s a tinkering with an old one, but a tinkering with some significant effect. One thing the new wording specifically excludes from hot food is “freshly baked bread”, and so I guess the Tribunals can expect a loaf of fresh cases on what constitutes bread. Watch this space...
