A group of franchisees at high street sandwich giant Subway are expected to take their fight over the pasty tax to the European Court.

The US-owned food chain, which has 1,500 outlets in the UK, lost its case at the Court of Appeal last week.

It is fighting the pasty tax on a belief that its toasted sandwiches do not fill the criteria of ‘hot food’ and should be exempt from the tax. However, HMRC says toasted items are also liable to VAT.

The group was granted leave to appeal a ruling last year that toasted sandwiches should attract the 20% tax.

If Subway is successful in its fight, it is thought that up to £1bn in tax revenues could be at stake.

In October 2012 British Baker reported that a tribunal had ruled against the move to exempt the food-to-go sandwich firm’s ‘toasted’ sandwiches and similar products sold by bakery retailers from the 20% tax.