Standard rate tax looks set to be applied to all hot takeaway food, such as pasties and pies, as part of a government drive to close loopholes in the VAT system.

A consultation document was launched yesterday (21 March) – VAT: Addressing borderline anomalies – with the closing date for comments set for 4 May 2012.

Greggs has already said it will be responding to the consultation document. “We do not believe that our freshly baked savoury products should be subject to VAT and we will be making strong representation to the Government regarding the proposed changes,” said a spokesperson for UK’s largest bakery retailer, and leader of British Baker’s BB75 table.

Currently, food sold and designed to be eaten hot is subject to VAT. However, under yesterday’s (21 March) Budget announcement, all takeaway food sold above ambient temperature, with the exception of freshly baked bread, could be subject to the standard rate of 20%, whether it is designed to be eaten hot or not.

The definition of ‘premises’ would also be widened to include areas adjacent to the retailer, such as tables and chairs outside.

Pies, pasties and sandwiches, for example, when at or below ambient air temperature at the time they are provided to the consumer, will not be affected by the changes.

The current rules states that a supply of food “in the course of catering” is standard-rated. “This includes hot takeaway food that has been heated for the ‘purposes’ of enabling it to be consumed at a temperature above the ambient air temperature (and which is above that temperature at the time it is provided to the customer),” according to HMRC.

According the consultation document: “For a number of years, the borderline between hot takeaway food (standard-rated) and cold takeaway food (zero-rated) has been the subject of litigation, with some retailers arguing that the purpose of heating their food products is to improve their appearance or to comply with health and safety regulations, rather than to enable them to be consumed hot. So, although many retailers and takeaway outlets charge VAT on the sale of hot chicken products, hot pies and toasted sandwiches, some retailers and bakery chains sell similar products zero-rated.”

There have been a number of previous cases of bakeries and sandwich shops, such as Subway and Ainsleys of Leeds, appealing against VAT charges on hot food, which they argued was not necessarily designed to be consumed hot.

“Following a recent European Court of Justice judgement, the Treasury has come under increasing pressure, as various taxpayers have submitted substantial claims for VAT overpaid on the supply of hot takeaway food,” according to business and financial adviser Grant Thornton.

“While the Chancellor has announced a consultation, his intention is to ensure that all hot food, with the exception of freshly baked bread, is taxed at the standard rate of 20%.”

Lorraine Parkin, head of indirect tax at Grant Thornton, said: “At a time when retailers are operating in a very challenging economic environment, this will further reduce their profits unless they are able to pass the tax increase on to their customers. For many retailers there could be administration costs incurred in programming the VAT liability change in to their accounting systems.”

The HMRC would like to hear from businesses involved in the manufacture and retail of affected goods or the provision of affected services, as well as consumers affected by the changes and tax practitioners. To get more information on the consultation or to submit a response call David Roberts, VAT projects team, on 020 7147 0205 or email

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