Save content
Have you found this content useful? Use the button above to save it to your profile.
AIA

Pasty tax-hit company sold to footballer

by
14th Apr 2014
Save content
Have you found this content useful? Use the button above to save it to your profile.

A consortium featuring former England footballer Danny Mills has acquired West Cornwall Pasty Company after the firm collapsed into administration on Friday.

Most jobs were saved following a pre-pack deal, arranged by administrators PwC, of the majority of the business to a private equity (PE) fund backed by the BBC pundit and Celebrity Masterchef finalist.

The £7.5m Enact fund bought the 34 most successful of the company’s 65 outlets. PwC said 274 out of a total of 366 jobs had been saved by the emergency sale.

On the collapse of the pie seller, Chris Cormack, Enact’s investment director said the chancellor's “pasty tax” had been a contributing factor, ending a VAT exemption for hot baked goods.

“The business has struggled to cope with the effects of the pasty tax and a number of underperforming outlets,” he said.

The controversial decision to apply 20% VAT to all food sold “above ambient air temperature” hit the headlines in March 2012 and resulted in the government being accused of being out of touch with ordinary people.

AccountingWEB speculated at the time that the measure had been triggered by German court rulings eliminating VAT on hot takeaway foods in the Manfred Bog case the previous year.

By May that year the Chancellor had climbed down and altered the definition of a “hot” pasty, allowing the VAT reversal on food that was “cooling down”, such as pasties and sausage rolls, after being removed from the oven.

However even after the partial reprieve, firms such as West Cornwall decided to keep food hot and still had to pay the VAT.

Vaughn Chown, head of VAT at Gabelle, told AccountingWEB: “Manfred Bog and his hot sausages are clearly food and subject to VAT at the reduced VAT rate. We mustn't forget however that there is a derogation in the UK which applies to food which removes food from the EU VAT Directives and allows some foods to be zero rated in the UK.

“Whether the UK derogation is inconsistent with EU principles we shall have to wait and see. Personally being a Westcountryman I like my pasty straight from the oven allowed to cool down naturally, but that does seem at odds with most people's preference for a hot pasty from the heated cabinet as I believe other retailers have found out,” he said.

West Cornwall had also been struggling under previous PE owner, Gresham, which expanded the chain after it bought it from its founders in 2007 for a reported £40m.

David Chubb, Stuart Maddison and Robert Moran of PwC were appointed as joint administrators of West Cornwall Pasty Co on 11 April.

Chubb said: “The last few days have seen an intensive period of activity as we worked with the group to explore the options available to them.

“The company was facing severe difficulties meeting its financial obligations as a result of a combination of factors, and having run out of alternative options, sought the protection of administration.”

The new deal is the first for Enact - which also includes backing from Republic founder Tim Whitworth, former HSBC banker Wayne Bowser and a senior partner at Deloitte - and is controlled by PE house Endless.

After launching in December Enact said it would invest in updating existing West Cornwall outlets, open some new ones and work on product innovation. Existing management will remain in place under a new executive chairman.

Enact was supported in the transaction by Sankaty, part of the Bain Capital Group.

Tags:

Replies (2)

Please login or register to join the discussion.

chips_at_mattersey
By Les Howard
14th Apr 2014 17:04

'Pasty Tax'

At the time of writing, we are waiting for the Court of Appeal to hand down its decision in the Sub One Ltd T/A Subway case. I understand that the expectation is that the case will be referred to the European Court. This will therefore prolong the uncertainty that this type of business faces with regard to VAT.

If, of course, the CA refuse to refer the matter, then West Cornwall, and numerous Subway and other hot food outlets will have to suffer the 20% rate on their sales. Since there is little input tax available for recovery, the cost to any such business is significant.

Thanks (3)
By Robert Lovell
16th Apr 2014 09:09

Comment from Steve Hodgetts of Baker Tilly Tax

Whether VAT should be applied to certain foodstuffs has long been a contentious issue in the UK; specifically excluded from the benefit of the UK’s zero-rating of foodstuffs is any supply in the course of catering; which includes any supply of hot food for consumption off the premises from where it is supplied. As an EU tax it is important that VAT is harmonised across the EU, however, in addressing any VAT anomalies in the UK, it must be recognised that the unexpected consequences of hasty tax changes may cause business failures.

Thanks (0)