Retail Newsletter

‘Pastygate’ VAT row hots up

The cut in the top rate of tax from 50p to 45p may have hit the headlines following this year’s Budget on 21 March, but Chancellor George Osborne’s move to introduce VAT on hot takeaway food sold by bakers and other retailers has also attracted plenty of coverage.

The plan was announced as part of a package of measures to bring varying VAT rates on very similar products into line and would mean that the 20 per cent standard VAT rate would be charged on hot takeaway products, such as rotisserie chicken, pies, pasties and toasted sandwiches that were previously zero-rated, although hot baked bread would not be included.

The plan, which is out to consultation until 4 May, has come under fire on a range of issues. The proposal is that products will be subject to VAT when they are above the ambient air temperature – i.e. hotter than their immediate surroundings – at the time they are provided to the customer.

But when Mr Osborne appeared before the Treasury Select Committee on 26 March, Labour MP John Mann suggested that a lukewarm pastry would be taxable in cold weather, but not in hot weather, because of the difference “ambient temperatures".

Mr Osborne said that HM Revenue & Customs (HMRC) would not check on every product sold but would come to an agreement with companies over what proportion of their products were sold hot.

Meanwhile Greggs’ chief executive Ken McMeiken has said he feared the move would cause job losses and business closures and a number of petitions have been set up to oppose the tax, including in Cornwall, where the pasty sector is said to be worth £150 million a year.

HMRC expects around 2,000-3,000 businesses to face a cost from system changes, repricing and extra bookkeeping relating to the change but that this will be around £50 per business. It also says there may be a fall for in demand for hot food products but that the overall impact is expected to be “negligible”.

The issue highlights the complexities of VAT and why working with specialists in this area can be useful in ensuring compliance and VAT-efficiency. For more information, please contact us.

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