I recently got an SOS call from an accountant, asking me to urgently visit a client who runs a pizza takeaway business. I felt like James Bond being called into action on a high-profile mission: ‘Operation Margherita’, so to speak.
The business owner was convinced that if one of his delivery drivers got delayed in traffic (or got lost) on his way to dropping off a pizza at a customer’s house, then it should be zero-rated as cold takeaway food.
His reasoning was: the pizza had cooled down due to the lengthy delivery time delay, so it should be classified as cold food. Does he have a valid argument?
Heat retention bags
The owner had no problem with the smaller-sized pizzas he sold being standard-rated as hot delivered food because these pizzas fitted into heat-retaining bags, so did not cool down on the journey to the customer’s house. In other words, there was no question about whether they arrived hot or cold.
He also accepted that the pizzas he sold over the counter to customers were standard-rated in all cases. So far, so good.
The owner’s argument was that if the pizzas were too big to fit into a driver’s heat-retaining bag, which applied to large and family-sized pizzas, they were instead packaged in normal trays.
In this case, there was going to be an inevitable cooling-down period between the time the pizza was taken out of his oven and was eventually delivered to the customer’s doorstep.
He quoted many reasons why there might be a lengthy time delay ie he thought these pizzas should be zero-rated as cold food:
Problems finding the customer’s address
The driver being delayed picking up the pizza from the trading premises
The customer not answering the door very quickly.
What does the HMRC guidance say about this situation?
VAT Notice 709/1
After the confusion with George Osborne’s “pasty tax” budget in 2012, we now have clear(ish) rules about VAT and hot food.
The main outcome is that if food comes out of the oven and it is above the ambient room temperature, it has to go through five different hurdles (and pass all five) in order to secure zero-rating (see VAT Notice 709/1, section 4).
Those tests for hot food are that it has:
been heated for the purposes of enabling it to be consumed hot
been heated to order
been kept hot after being heated
provided to a customer in packaging that retains heat (whether or not the packaging was primarily designed for that purpose) or in any other packaging that is specifically designed for hot food
advertised or marketed in a way that indicates that it’s supplied hot.
We have already considered test 3 with the heat-retaining bags.
But the argument for zero-rating on the large and family pizzas is dismissed by test 1. This confirms that the relevant issue is the temperature of the food when it comes out of the oven and the intention for it to be delivered as hot food, rather than by making a detailed analysis of the temperature when the customer takes ownership.
To quote from para 4.3 of VAT notice 709/1 about test 1: “it’s the purpose of the supplier (and not the customer) in heating the food that counts.”
To put the issue beyond any doubt, pizzas are listed as a food that is always classed as “hot food” for this test, along with Chinese and Indian meals, kebabs, fish and chips and many of the UK’s favourite dishes.
Marketing of food
As a final nail in the coffin, our owner’s very impressive but flawed argument was also defeated by the comment on his own website that “your delicious pizza will arrive piping hot ready for you to enjoy with your friends.” This statement means that test 5 also fails.
The purpose of the legislation is to ensure that hot takeaway food is always subject to VAT and cold takeaway food gets zero-rating unless it is a specifically excepted item such as an ice-cream or a chocolate bar.
The guidance given in notice 709/1 is very clear and conclusive in most cases, particularly about pizzas!