Bishop Fleming leads charge against pasty tax

South West accountancy firm Bishop Fleming has taken up arms on behalf of the Cornish pasty after the government announced hot pasties will now be subject to 20% VAT.

Tax experts in the Truro office picked up on the item in the Budget statement and now want to “kick-start” a new social-media campaign.

Bakery chain Greggs also vowed to fight the government’s proposal to impose VAT on certain hot foods as one of the anomalies covered in last week's Budget. The measure may have been triggered by German court rulings eliminating VAT on hot takeaway foods in the Manfred Bog case last year, but UK critics are complaining the new rules were sprung on the industry without prior consultation.

Around £30m was wiped off Gregg’s market capitalisation last week following the announcement, and the company has now asked for meetings with ministers to discuss the implications.

Until now VAT was chargeable on pasties that were heated for consumption, but the new rule means pasties that have not yet cooled from the cooking process will also be subject to full rate VAT.

From 1 October any pasty that has not cooled beneath “ambient temperature” must be sold at a price that includes 20% VAT.

Robert Bailey, Bishop Fleming‘s director of tax in Truro, said: This is madness, it means that Cornwall‘s pasty bakers will have to charge 20% more for hot pasties sold before they have cooled down from the oven.”

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Comments
John Stokdyk's picture

This one will run and run    1 thanks

John Stokdyk | | Permalink

The pasty tax has already gained a lot of attention in the mainstream media - on several occasions I've heard artisan bakers complaining that the need to monitor the temperature of their loaves will add to their administrative burdens.

But the measure also raises some tricky theoretical questions about the legal definitions employed - as tax measures often do.

The Budget TIIN (A85) explains that the current test for "hot takeaway food" is based on the purposes for which food is heated, so a new test on whether the food is above ambient air temperature at the time it is provided to the customer will be based on objective criteria and simpler to enforce.

But Fairness in justice blogger Monty Jivrav highlights a couple of thorny questions around the definition of "dominant purpose":

1. Is a toasted sandwich quite distinct product from an un-toasted sandwich both in terms of flavour, appearance and texture. Is the creation of toast quite different from just warming or heating bread?
 
2. Is a toasted sandwich supplied bar two is not actually above the ambient air temperature as at the time of the supply if Indeed the majority of the toasted sandwiches are significantly below the ambient air temperature?
 
This one looks like it will run and run - but how many court cases will it take, and how high will they go, before the rules are finally clarified?
 
In PR terms, this one may rank second only to the "Granny tax" in the list of government and HMRC miscalculations.
Constantly Confused's picture

I must admit

Constantly Confused | | Permalink

Much as I feel for the bakers who this will no doubt cause huge harm to, I'm struggling to see this as anything other than an excerise in how I can play the new rules to my advantage ('ambient temperature' seems like it might have a bit of wiggle room, what area are we considering?).

I also don't understand your two quoted points, is Monty suggesting there is a bit of a grey area between 'bread' (can still be sold hot and ZR) and a toasted sandwich?  As in, when does bread cease to be bread (when does bread become a mere component of a new item)?

Time for change's picture

Yes, strange how

Time for change | | Permalink

all the "mundane" Budget announcements were leaked, prior to the actual statement, to fellow MP's etc but, the guts and thunder (and spin) for that matter, were all kept in the red box.

I won't hold my breath but, I just wonder if the window of opportunity (between now and October 2012) will result in a calming of various aspects of this PR disaster?

I would never have expected that a fairly new coalition administration would go so far out of its way to be unpopular. Has no-one told them, we're still deep in recession? These people make bankers look like hero's!

 

taxes by the back door.-i doubt there will be any pr excercise.

david5541 | | Permalink

"cornish pasty tax";

"granny tax,"

"cathedral improvement" tax

"postage tax" allowing he post office to hike up stamp prices by 25%! ahead of sell-off.

 

where will it stop!

the local elections are going to be a bombshell on the tories and libdems!

(otherwise referred to as condems!)

kenfrost's picture

Caviar

kenfrost | | Permalink

Fortunately caviar is still VAT free! ;)

Wild Billy's picture

Isn't it astonishing...    2 thanks

Wild Billy | | Permalink

... that after years and years of moaning about complexity, including the different VAT rates for similiar products, that we now complain when there is simplification? All this really reveals is three things:

(1) We will moan whatever happens- if there is simplification we will moan about fairness or because we "have" to now find other ways round the system.

(2) We don't really want simplification- we really want what is best for us (whatever that may be)

(3) All those who shouted so loudly about simplification- including misaligned VAT rates- go depressingly quiet when the flak is flying and aren't prepared to put their heads above the ground to back up their earlier views.

And so the roundabout starts again. All aboard.

mileswaterman's picture

Government was under pressure

mileswaterman | | Permalink

The Government was under a lot of pressure because takeaways were continuously campaigning about unfair treatment with supermarkets selling hot food and zero rating, bakeries selling hot sausage rolls zero rated, campaigners saw this as an unfair playing field.

On top of this with the emergence of the Manfred Bog Case, pressure to zero rate hot food all together has caused the government to drastic action.

Perhaps a fairer idea will be to have a new reduced rate of say 10% for ALL hot food takeaway including hot chickens at supermarkets or hot savouries from GREGGS!

We have to consider years of unfair treatment for the Fish and Chips proprietor who sold chicken standard rated and the supermarkets sold whole chickens zero rated with a 20% advantage.

The National Federation of Fish Friers have been fighting this with the help of KPMG.

Constantly Confused's picture

:)

Constantly Confused | | Permalink

Wild Billy wrote:

(1) We will moan whatever happens- if there is simplification we will moan about fairness or because we "have" to now find other ways round the system.

 

Just in case that was aimed at my earlier comment, I am ecstatic that I 'have' to find ways around it, that's why I enjoy VAT so much :)

If there was a job where all I had to do was do exam questions and/or solve problems I would be in heaven.  Sadly not.

The next VAT Carousel scam ...

mikewhit | | Permalink

... importing hot pasties, claiming back the VAT, and selling them back cold, to be re-heated.

Monaco awaits ...!

leshoward's picture

Use lower VAT rate    1 thanks

leshoward | | Permalink

Great suggestion - it would be much easier all round if all food sales were charged at the 5% rate, the exception being 'restaurant transactions,' to quote the ECJ in Manfred Bog, and other cases. Issues about hot food, premises, sports drinks, fruit drinks, energy bars, etc etc, would all go away. Manufacturers and retailers would have a level playing field.

The standard rate would be used were there is real 'value added,' which restaurant customers will pay for.

The changes in the Budget simply move the areas of litigation. The Sub One Appeal is still relevant, and will remain so, until the Chancellor deals more decisively with the issue.

AND, fish and chips will become a little cheaper!

Why only *above* ambient ?

mikewhit | | Permalink

Surely this should equally apply to ice cream, which has to be prepared below ambient temperature (apart from Nordic winters) to exist in a saleable form.

Baked Alaska takeaway, anyone ?

And what if we have another freezing winter - then even a humble ham & cheese sandwich from Asda will be "above the ambient (-5C)".

Whilst I have sympathy

pauljohnston | | Permalink

taxes need to be paid to keep the country running.  What the chancellor has done is to increase personal allowances and increase tax somewhere to balance out.

Outrage

PN1976 | | Permalink

The government mentioned in the budget about making the treatment (VAT) of hot food standard, that was surely a sign to everyone that the goverment was going to add VAT to the hot foods that currently did not have VAT charged on it.  Fair is not a word this goverment understands, however taking is something they are very good at.

This has to stop and I fully support the Bishop Fleming case the goverment are putting many grey areas in this new rule, where will it end, please use common sense.

It's unfortunate

doorsteps | | Permalink

I don't see that HMRC really had a choice. It's unfortunate that bakers have to now change their working practice so that pasty's are below ambient temperature before they sell them. The bigger picture however is retailers such as Greggs mentioned above who have been getting away without paying the VAT on an identical product that would carry VAT in a cafe/take away.

I think the change in legislation was way overdue.

Nice weather for the pasty tax?

Bishop Fleming ... | | Permalink

Nice weather for the pasty tax?By Robert Bailey from Bishop Fleming Chartered Accountants - Tel: 01872 275651Robert Bailey

The precise rules of the "pasty tax" are detailed in a  consultation document called "VAT: Addressing Borderline Anomalies" and the Chancellor referred in his budget to the various VAT measures that he was introducing as closing loopholes and addressing anomalies. 

What he has done, possibly due to he and his Treasury officials colleagues lacking a knowledge of GCSE physics, is to create the anomaly of a variable tax rate that depends upon the weather.

A pasty will suffer VAT at 20% if it is served above ambient air temperature at the time of sale but will be zero rated if it has cooled to that ambient air temperature. So what will that temperature be? 

The Chancellor's servants could have told him that when food comes out of the oven it is hot and then cools. Any school boy could advise that how fast it cools will depend on the air and that the temperature it will cool to will be the ambient air temperature. Both that final temperature and the rate of cooling will vary, based on the time of day, the time of year, the amount of heating applied to the room, where in the room the pasty rack happens to be and the weather.

If a weather dependent VAT rate is not an anomaly, then it is hard to see what is.

In the meantime, I am anticipating asking for a fresh pasty and being told: "Certainly sir, would you like to step into the sauna?"

http://www.bishopfleming.co.uk/Home/Blog/March-2012/Nice-weather-for-the-pasty-tax-.aspx

I'm sure they tried to treat

TOC | | Permalink

I'm sure they tried to treat hot food this way about 30 years ago and gave up because it was impossible to enforce the rules. This looks like history repeating itself.

Heard on radio this morning that whether the food is vatable or not depends on the outside temperature. If that is the case, not vatable when I left home this morning (cold & frost on car), vatable now since it is a hot day. How on earth can this **** be workable in practice.

 

Rate of cooling depends on temperature differential ...

mikewhit | | Permalink

So the nearer the pasty gets to 'ambient' the slower the rate of cooling - especially with the insulating crust around it !

It could be that the exterior is at ambient (just) but the interior could still be warm - how will that work.

Can we expect Greggs to install blast chillers and then place a microwave oven next to the exit door ? Not ideal from the carbon point of view.

And of course we will now insist on getting VAT receipts for the VAT refund.

 

Next - VAT on childrens clothing when worn by over-16s

sue scherzo's picture

Bisop Fleming and pasties    1 thanks

sue scherzo | | Permalink

Sorry but when I saw this headline I wondered why the Church was getting involved!

mydoghasfleas's picture

How do you advise clients

mydoghasfleas | | Permalink

I have already posted clients that they should all get their haircuts several times before 1 October as the VAT on chairs is a definite.  I am now also suggesting they eat all the pies or pray for global warming to increase the air temeperature.

sally1964's picture

I like it hot

sally1964 | | Permalink

When in Cornwell I always buy a hot pasty to eat there and then. I buy it with the intention of eating it hot in the same way I would purchase hot chips.

What ever happens any food which is generally sold as hot should all have the same rules applied.

We need simple rules on things like this.

 

Whats to say Macdonalds would then sell burgers and say that they expect people to eat them cold.

Perhaps a lower rate of say 5% on all food provided hot and then 20% on sit in eateries.

We need a level playing field.

Sorry for the Cornish Pasty but I will still buy you with the VAT, however I am not likely to buy you if you were cold!

zxcvb's picture

Cold Chips

zxcvb | | Permalink

Does this mean that on a hot day, the "only just about warm" chips I get at the seafront takeaway should be VAT free?

take away food

aburt01 | | Permalink

Sorry, but supermarkets and bakeries the land over have been undercutting other take-away operators for too long.  Either we all pay the tax over to the Govt or we all don't.

Obviously a general 'hot' food rate does not have to be at the standard rate, but, a level playing field is required, frankly it is always going to involve more tax to the Govt, not less, at least whilst the deficit remains and other tax revenue growth is zero.

 

lechiffre's picture

VAT on takeaway food

lechiffre | | Permalink

sally1964 wrote:

When in Cornwell (sic) I always buy a hot pasty to eat there and then. I buy it with the intention of eating it hot in the same way I would purchase hot chips.

What ever happens any food which is generally sold as hot should all have the same rules applied.

We need simple rules on things like this.

 

Whats to say Macdonalds would then sell burgers and say that they expect people to eat them cold.

Perhaps a lower rate of say 5% on all food provided hot and then 20% on sit in eateries.

We need a level playing field.

Sorry for the Cornish Pasty but I will still buy you with the VAT, however I am not likely to buy you if you were cold!

Totally agree with the above, what is the difference between buying a take away pasty and fish and chips... answer none, so the VAT treatment should be the same. Now you can argue that there should be a different VAT rate for take away food and that does have its merits too, but that's a totally different argument. This change give us consistency and a level playing field for food suppliers like McD,the local chippie and the pasty shop.

If Greggs feel so strongly about its effect on their customers, will they consider absorbing the VAT increase from their not insignificant profits? Unlikely I feel.

ambient

npreynolds | | Permalink

Is it clear that ambient temperature is that outside in the street?

One side of our street is in the sun and temperatures there are over 5 higher than on the other, shady side.

If ambient temperature is the air temp in the shop does this not call for very hot shops?

I am thinking it might be a good idea to sell cornish pasties in a turkish bath!

And.....there's more.....Greggs could sell turkish delight in their shops !!

Another solution from Reynolds & Company !!!

 

 

Old Greying Accountant's picture

Yes they do ...

Old Greying Acc... | | Permalink

pauljohnston wrote:

taxes need to be paid to keep the country running.  What the chancellor has done is to increase personal allowances and increase tax somewhere to balance out.

... but not by someone working 20 hours a day for meagre pay who only has the chance to grab a pie or pasty as his only hot meal!

Although I imagine the vendor will have to absorb much of this and yet more high street shops will close as we head blindly towards Tescopia.

As an aside, I have many issues with VAT as a concept. You may remember my guest house client nearering the VAT threshold, so income £72,000, expenses £57,000 profit = £15,000, then, Income = £74000, expenses £57,000, flat rate VAT @ 9.5 (10.5-1 1st year) £7030, profit = £9970 - what a wonderful and fair system we have! No, they can't add the VAT to the room rate or they would have no occupancy, they must absorb it! 

I hate pasties, but what else

wizzard | | Permalink

I hate pasties, but what else are we going to get charged on? VAT on breathing fresh air?

get healthy

Mikerichards | | Permalink

Look people - pasties are disgustingly unhealthy so you shouldn't be eating them anyway. Tax should be levied on all high fat, greasy, heart attack inducing products. May help to keep people out of A&E because they are 37 stones - reduce the NHS bill - and enable the Govt to CUT TAXES - which are largely wasted anyway (example - M4 overhead signs every few miles at £1m a pop which either say - think bike or are blank) am I digressing?

Cold pasties warmed up

david wilks | | Permalink

Surely, as the tax point is established at the point of sale, when money is accepted in payment for said cold foodstuff, all that needs to happen is that the customer is then asked if he/she would like it heated.

Am I missing something?

Said so ...

mikewhit | | Permalink

Yes, hence my earlier comment about the blast chiller and microwave.

thermometer

geoffwolf | | Permalink

The EPOS equipment manufacturers can have a field day providing thermometers and/or heat sensors on tills.

Alastair Johnston's picture

Cheese and onion

Alastair Johnston | | Permalink

Right, that does it.  I am going to start refusing Gregg's cheese and onion pasties that "have a little bit of heat in them".  It's hot or nothing! 

As for the steak bakes, I will avoid VAT by continuing not to buy them.  

MIJ's picture

David Cameron defends hot food Tax

MIJ | | Permalink

David Cameron defends hot food tax.

I Monty Jivraj ask him to answer the following two questions below before he defends hot food tax.

What is Dominant Purpose?

1. Is a toasted sandwich quite distinct product from an un-toasted sandwich both in terms of flavour, appearance and texture. Is the creation of toast quite different from just warming or heating bread?

2. Is a toasted sandwich supplied bar two is not actually above the ambient air temperature as at the time of the supply if Indeed the majority of the toasted sandwiches are significantly below the ambient air temperature?
 

Most importanttly Sub One (Subway) is totally out of time for appealing a decision which was made on 6 October 2010.

non-EU

mikewhit | | Permalink

I wonder if you could not pay VAT on hot pasties as long as they were from the Channel Islands ...? Or perhaps three-cornered Manx ones.

;-)

JAADAMS's picture

Another to add to your list Robert!

JAADAMS | | Permalink

Hidden on page A111 and A112 of the Budget’s ‘Overview’ document is a measure also intended to ‘simplify the tax system’ as its retention is supposedly making the system ‘distortive’. David 5541 listed some of the measures that have caused upset but no-one has made a stand against this measure.

It is a measure which, once in place, is acknowledged will produce negligible additional income for the Exchequer, is blatantly discriminatory against one company in particular - and will also have an effect on some ‘grannies’!

So what could it be?

Answer: it is the withdrawal of the VAT exemption for a beverage taken for its medicinal value..... a particular type of Black Beer.  

There is only one known producer of Black Beer, based in Yorkshire, apparently producing around 35,000 bottles annually. It is generally used as a mixer or in cooking although it can be taken for medicinal and nutritional benefits which obviously the Chancellor does not believe as he uses the ‘word ‘perceived’ in the text.

To quote from the ‘Overview’ text - ‘An excise duty exemption in 1931 ensures its continued production, which would have been put at risk by substantial increases to beer duty at the time. The duty exemption is now being repealed’

No reason is given for the withdrawal and the text goes on to say that the withdrawal of VAT exemption will increase the cost thus there may be an impact for the over 65s who are the Beer’s most likely consumers. But it will definitely ‘have a negative impact on the sole producer of Black Beer, based in Yorkshire. It will make the product more expensive making it less affordable, particularly for consumers of pensionable age’.

So why withdraw the exemption? I thought we were trying to invest in UK produced products? Its production is not making a loss unlike the banks the Exchequer will not have to pick up the tab (get it!)

Perhaps Robert Bailey would consider making a stand against this one as well?

Kind of ‘add it to his list’? Or is Yorkshire too far away from Cornwall?

 

 

mileswaterman's picture

Level Playing Field

mileswaterman | | Permalink

The main issue that the government has tried to address was the fact that supermarkets sell hot food, keep them in hot displays and sell them in heat retaining packaging. Then sell it as Zero rated. 

Buy the exact same product from the Fish and Chips shop and the proprietor has had to add 20% VAT. This has been the way for many years but the local chippy does not have the power of GREGGS and TESCOS etc. 

While everyone feels sorry for the national firms who could quite easily absorb this cost have a thought for the local proprietor who works long hours to earn a living and cannot even compete on a level playing field.

Someone talks about Pasties being special for Cornwall, well Fish and Chips is a National Treasure.

I believe that all hot food should be treated equally.

At the same time if a pie is cooked fresh but not stored in a heated cabinet then the intention cannot be to sell hot so that should be zero rated.

If however chicken portions are cooked and displayed in a hot cabinet the served in heat retained packaging then whatever general Hotfood treatment is at the time the big boys will have to follow suit.

The majority of the public is dissapointed as they did not know that they were having to pay VAT on any hot food at all!

 

 

Freshly cooked

mikewhit | | Permalink

But why is 'freshly cooked chicken' different from a freshly cooked pie or pasty - it clearly cannot be eaten in its raw form, so cooking renders it edible, hot or cold.

A whole cooked chicken clearly cannot be eaten "out of its wrapping" in the same way as fish and chips - or a pasty for that matter - it may be intended to be taken home for those who do not have the facilities to oven roast a chicken but would like to provide (cold?) cooked chicken to the family.

Plus we are always warned about reheating food ...

Will supermarkets start providing a "free rotisserie service - collect later" for pre-purchased uncooked poultry ?