The Realities of the Pasty Tax

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...

April Fools

It’s April Fool’s Day on Sunday!  With years of experience pounding the streets our Customs officers between us we’re seen a fair few fools in our time.  Here are some examples to provide some light VAT filled entertainment over the weekend...

·    In pre-EU days a repayment trader was claiming VAT back on purchases of tractors exported to Ireland.  All the export documentation was in order but strangely some of the tractors had ended up back in the UK being sold without VAT.  It turned that the trader had been driving the tractors back over the land border through a muddy field in the dead of night with the risk of being shot at by the IRA or the security forces or perhaps both.  Proper hands on tax planning!

·    One trader seemed to be expecting a large outbreak of norovirus as they were found with a mountain of toilet paper stacked up floor to ceiling in the basement along with the rest of the stock.   On closer inspection by a beady-eyed inspector the mountain of toilet rolls turned out to be makeshift false wall behind which was found six crates of extremely low-grade but highly illegal vodka.  The shop owner first denied all knowledge and then hurriedly called his accountant who appeared with some handwritten invoices.  However, the ink was still drying on these invoices and thus all the vodka was seized. 

·    A veteran of Chinese restaurant inspections (with the girth to prove it) carried out his usual spot checks on chits and carton orders.  His instinct told him something was wrong – the till receipts were just too low for this kind of business.  Braving the wrath of a cleaver wielding chef he ventured into the kitchen area and spotted a pig carcass with a small length of till receipt hanging from its rear end.  Shuffling in closer he noticed stitches on the belly, which after a few quick tugs split apart to reveal a second till craftily hidden inside the pig!  A sweet and sour experience all round.

A VAT Free Valentines

Love is in the air again.  But then so is recession.  So in these hard times you’ll be especially keen to pick up a few bargains that don’t involve paying 20% of the price to the tax man.  So here are a few suggestions on how to adapt traditional valentine’s gifts so that none of your Valentine’s Day needs to involve George Osborne spending your hard earned cash.

The Card

First one is one of the toughest.  Cards, eCards you pay for, and even paper to make a card, all come with VAT.  You could try making one out of a zero-rate magazine or picture book.  Or maybe buy a zero-rated map and circle your house with a heart.  Luckily, whatever you do send, the postage will be VAT free!

Flowers

Grow your own.  This one involves planning ahead but, if you’ve got the skill to do it, seeds at 0% are a far better option than flowers at 20%.

Dinner

You may not need an extra excuse to avoid the happy couple competition at your local restaurant, but happily the 20% VAT on catering and hot take-away food gives you one.  If you can pluck up the courage to cook at home you can have oysters, asparagus, fantastic steak and organic vegetables, all at a pleasing 0% VAT.

Chocolates

Sadly chocolate love hearts, chocolate truffles, and Quality Street all come in with 20% VAT.  But pick up some brownies or a chocolate covered cake from M&S and you’re back in zero-rating...

Photo Frame

This could be the year to avoid the ubiquitous heart-shaped photo frame at 20% VAT.  Happily, following last year’s Trueprint case, photobooks are now all VAT free, and just as romantic.

Lingerie

An old ploy for the smaller female has been to buy clothes in children’s sizes which are VAT free.  Somewhat reassuringly the legislation prevents this extending to lingerie so other solutions are needed.  Sadly I don’t really have any.  Maybe if it was made of food, but not sweets or chocolates as they’re all 20% rated confectionary.

Jewellery

Necklaces, earrings, rings and bracelets are all out I’m afraid.  But if he or she has got a taste for precious metals, a block of gold or some gold coins would come VAT free.

Going Out

Happily there are masses of things you can do together without the heavy burden of VAT.  Travel by tube or bus at 0%, instead of taxi or car at 20%.  A James Bond night at the Casino, no VAT, but if you start gambling there is admittedly betting and gaming duty.  Not-for-profit museums and zoos are all VAT free.  And similarly theatre and music; so avoid the profit making X-Factor gigs and get tickets for the not-for-profit Royal Opera House.

Romancing

Finally, if the evening progresses well, some more intimate romancing may come into play.  Just remember that all contraception comes at a reduced VAT rate of 5%.  Sure it’s not the full 20%, but if, like me, you want to be true to your VAT free principles abstinence is the only way.

Best wishes for a romantic VATless evening!

VAT Fact - Fine Wine

Now “dry January” has come to an end, a good bottle of red is surely featuring higher people's minds. With 20% VAT, plus excise and customs duties, the indirect tax implications can be substantial.

Where a business imports wine to the UK, customs and excise warehousing can be used to suspend the payment of VAT and duty until the wine is bought into “free circulation” e.g. drunk. This gives a great cash flow advantage, but if the wine remains in the UK ultimately taxes still need to be paid.

However, the beady-eyed advisor may note that “collectors' pieces” benefit from 0% customs duty and a reduced effective VAT rate of 5%. A potentially massive saving! So could wine be considered a collectors’ item of historical or ethnographic (cultural) interest?

Precedent comes from the decision in E Daiber v Hauptzollamt Reutlingen, identifying five criteria for classification as a “collectors’ piece”. So perhaps we can consider the recent sale of three bottles of Chateau Lafite 1869 (for a bargain approx £500k), in light of these specific criteria.
Link to info on expensive wine auction...

1. Possesses a certain scarcity value: Chateau Lafite has a small output and not many will have survived since 1869.


2. Not normally used for their original purpose: Given the article informs us there’s “a likelihood that at least one of them may be opened and drunk”, this suggests the majority of the bottles would not be used for their original purpose.



3. Subject of special transactions outside the normal trade in similar utility articles: Most wine is sold in shops, collectors’ items are generally sold at auction.



4. Of high value: Fairly self evident.


5. Illustrates a significant step in the evolution of human achievements or a period of that evolution: Perhaps of more debate but there is apparently huge interest in “pre-phylloxera vintages” and I’m sure many a wine buff would happily argue the cultural value of certain wines.

I leave this for you to decide...