Toasted ciabatta
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VAT: ‘Hopeless’ hot food case proves easy HMRC win

15th Feb 2019
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Chain restaurant Eat’s claim that its takeaway grilled ciabatta rolls and breakfast muffins should be zero-rated has been criticised as a “hopeless appeal” by the tribunal judge.

This was an unusual case, in so far as the outcome seemed obvious to anyone who has followed the long saga of how the rate of VAT is dependent on the temperature of the food. This VAT niggle was at the root of George Osborne’s pasty tax blunder back in 2012.

The appeal made by Eat Ltd (TC06953) considered whether grilled ciabatta rolls and baked breakfast muffins qualified as cold food when sold on a takeaway basis. All food sold on the premises of a business is standard rated, and only cold food consumed off site qualifies for zero-rating, subject to many exceptions, exceptions to the exceptions, and exceptions to the exceptions to the exceptions, (VATA 1994, Sch 8, Group 1).

The facts

The tax involved exceeded £1.2m and related to sales made between 2005 and 2009. The lengthy delay in reaching a decision was apparently caused by the fact that the case was linked to the well-publicised food case of Sub One Ltd T/A Subway [2014] EWCA Civ 773.

That case was resolved in June 2014 by the Court of Appeal in favour of the taxpayer, so I am not sure why the Eat case took another four years for to reach the FTT.

The products

As far as the VAT liability is concerned, there is a big clue in the title of the goods. Grilled and baked usually, but not always, means that the food will be served hot.

A perusal of the tribunal report supports this view: both products were served to customers at a heat that was well above the ambient air temperature, the muffins were wrapped in a foil backed sheet to keep them hot, and the packaging included the words “Eat” and “Hot”. What possible argument could the taxpayer put forward to support a claim for zero-rating?

Taxpayer argument

The taxpayer’s main argument was that the heating process and actual serving of hot food to the customer was to achieve a sale of “fresh food” rather than “hot food.” The fact that it was hot was incidental to the objective of serving it fresh.

A reference was made to the fact that pies are allowed to cool down in a bakery or supermarket and still qualify for zero-rating even if the customer buys them before the cooling process has finished. But the judge was dismissive of the ‘fresh’ argument: “Food can be fresh irrespective of whether it is hot or cold.” The appeal was dismissed.

Judge’s horror

In all of my years working in the rough and tumble world of VAT, I cannot ever recall reading a tribunal report where the judge’s opening sentence in his conclusion was: “This is a hopeless appeal”.

To add substance to his disgust at his time being wasted, the judge applied Rule 10(1)(a) of the tribunal procedural rules and gave HMRC 28 days to claim costs from the taxpayer. This rule is headed ‘Order for costs’ and the judge referred to an “improper, unreasonable or negligent act or omission”. 

Mystery delay

There is a mystery around the 10-year delay between 23 January 2009, when the taxpayer submitted a voluntary disclosure for £486,215 to reverse output tax previously declared on the products in question, and the FTT report being released on 28 January 2019. The actual appeal was heard in October 2018. This is a massive time gap in the tax world.

Part of the tax due related to an assessment for £632,620 raised by HMRC in October 2009.  I wonder whether payment of this amount had been deferred by HMRC until the litigation process had been concluded, ie a cash flow boost for the taxpayer.

My assumption on the underlying cause of the delay may be completely wrong, so please add your ideas in the comments below.

Replies (3)

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By Justin Bryant
15th Feb 2019 09:58

But as stated in the link below the costs were not awarded for it being a hopeless appeal.

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By Malcolm McFarlin
18th Feb 2019 12:28

You said:
Part of the tax due related to an assessment for £632,620 raised by HMRC in October 2009. I wonder whether payment of this amount had been deferred by HMRC until the litigation process had been concluded, ie a cash flow boost for the taxpayer.
Would the Appellant not have claimed 'Hardship' or have I misunderstood your comment?

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Neil Warren
By Neil Warren
20th Feb 2019 07:41

Hello Malcolm - agree what you say about the taxpayer possibly claiming hardship and therefore not paying the assessment while the appeals process was ongoing. While reading the case report I went to the Companies House website and looked at the last accounts for Eat Ltd - and the balance sheet is not good.


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