Sandwich chain Eat has been issued with a £3.6m VAT bill after its toasties were found to be subject to the “pasty tax”. 

The dispute revolved around whether toasted sandwiches should be subject to the standard 20% VAT rate, like other cooked fare.

In 2014, HM Revenue & Customs won a drawn-out fight with a Subway sandwich franchisee in Yorkshire, which argued that toasties, like cold sandwiches, should be zero-rated. The battle went all the way to the Supreme Court.

Eat has set aside £3.6m to cover its tax bill. But it will have to borrow even more cash from its owner, Lyceum Capital, to drum up the cash, accounts for the chain show. For the 12 months to the end of June 2015, Eat reported a £20.2m loss on turnover of £99.4m, and the year before it posted a deficit of £26.4m.