Scottish craft baker Goodfellows and Steven has been let off a £65,000 HMRC ‘pasty tax’ charge.

Following a routine VAT inspection the baker was charged £64,740.78 in line with the law changes on hot food that came into practice in October 2012. The law states that hot food that is kept hot is subject to the pasty tax while food that is hot just from baking and left to cool is not.

Goodfellows falls into the latter camp and so is not liable to charge VAT on its hot products.

Months after having lodged an unresolved appeal, Goodfellows contacted Scottish Bakers for help. Chief executive Alan Clarke contacted the secretary of state for Scotland Alistair Carmichael and the Scottish cabinet secretary for food and drink Richard Lochhead who helped set up a meeting with the head of appeals for food and drink in Whitehall.

Representatives from the Craft Bakers Association were also invited as the pasty tax is a major issue for bakers across the UK.

Charge withdrawn

A spokesperson for HMRC said: “We have decided to withdraw it on the basis of the VAT tribunal’s rulings in Ainsleys of Leeds and Waterfields where food was being kept warm in a similar fashion.

"This implies no criticism of the officer concerned who acted perfectly properly in raising the assessment. This treatment does not apply to food that was heated to order which we have always maintained was standard-rated hot food and any transactions under the revised legislation from October 2012 which clarified the correct position in respect of food that was being kept warm.”

Don Henderson, managing director of Goodfellow and Steven of Dundee, said: “We were shocked to be told that we had to pay this additional amount as we had previous VAT inspections and this issue was never raised. Without the intervention of Scottish Bakers I am convinced that we would not have got our money back and I would like to say a big thank you to them for arranging this meeting and to the HMRC for clearly listening to our views and taking action to rectify this.”