The news this week that Subway had been granted leave to appeal against the previous decision that their toasted sandwiches and meatball marinara subs highlighted again how difficult it is to work within the rules for VAT and food and achieve any kind of consistency. This blog is not a technical summary of the Subway case, but more an argument that the present VAT rules on food are not that sensible and a new approach is needed.
Part of the problem is that the VAT rules followed on from purchase tax classifications and arguably these were not that sensible, but over the years food technology has changed massively and almost seems to have been because of the VAT rules, not because of consumer taste.
One wonders whether products like Dorito’s would have been developed and marketed so extensively if it were not for the considerable added benefit that none of the selling price goes to the exchequer in VAT. The fact that such products are no cheaper may arguably indicate that those ‘VAT’ funds are instead being distributed to the vendors by way of added profits.
HMRC last year announced changes to the definition of catering as it related to products served warm, the infamous pasty tax, because they recognised an anomaly, one that they had left festering since 1984. But in the face of a consumer and political backlash, the government backed down and introduced a set of rules seemingly designed to help a well-known baker. It has been argued that the recent Subway case made these new rules ineffective, but I suspect that the Government simply does not want another fight with Cornish bakers and the like and so is sitting on its hands.
So, what is my great idea to sort out this mess? My idea has a few really simple principles.
- Anything served in a restaurant, café, pub and similar is at 20% VAT. This is all about the level of service, as Manfred Bog et al held.
- Anything that has chocolate on is at 20% VAT.
- Any crisp like products are at 20% VAT.
- Everything else is taxed at 5% (except alcohol). This includes take away sales, including hot food.
The result of this would mean that pasties would be at 5% VAT unless served to eat in a restaurant, so take away sales are at 5% VAT. What a boom for fish and chip shops!
I know what you are thinking. This bloke is advocating adding 5% VAT on top of my Sunday roast and other basic foodstuffs, including my sons chocolate birthday cake. Yes, this is true, but everyone else in the EU does this and I actually think the overall financial impact would be minimal. A weekly shopping bill of £100 may be £5 more expensive, but if, for example, shopping contains carbonated drinks and a hot chicken, then the VAT on these items would be lower.
The biggest issue with all of this is that this involves us giving up another of our zero-rates, forever, and this is hard for any politician to consider. would advocate that a more sensible approach to the rules would be far simpler to understand.
I am sure the whole debate is more complex and there will be a lot of problems I am sure with my idea, but the present situation cannot continue, which, according to the Subway case, sees most of their competitors selling very similar products that are not taxed, seemingly with HMRC’s approval.
About The VAT Doctor
I have been involved in VAT for over 25 years and have worked for some of the top firms in the UK and also had a spell working in New Zealand. I advise small and medium businesses and accountancy practices and have particular experience in education, charities, international supplies and partial exemption. I am based in the beautiful county of Norfolk.