With the 'pasty tax' being all over the papers, are we really moving closer towards a level playing field?
What is normal in the world of food and catering?
The Government's intended removal of 'anomalies' has revived the debate on fair taxation and a level playing field in relation to food stuff and catering. Despite the nation's emotional attachment to zero-rated pasties, it would actually appear quite reasonable to subject hot pasties to the standard rate of VAT – just like all other hot take-away food. However, in relation to food and catering, anomalies seem to be pretty much the rule rather than the exception.
The UK has a derogation which permits slightly different rules to other EU member states. Further, the introduction and invention of new food and drinks over time, as well as the development of case law, makes it difficult to establish the VAT liability of many items with any certainty. Often-quoted examples are the different treatments of cakes versus biscuits and savoury snacks based on potatoes versus maize.
The fact that HMRC may grant different rulings to competing businesses for what would be in fact the same kind of supplies shows that we are currently far away from a level playing field.
Ideally, a full review of 'food' and a redefinition of 'catering' would be needed to provide clarity and a fair competition but as this seems unlikely any time soon, ongoing developments such as the examples below should be closely followed.
The application of the standard rate to all hot food (except freshly baked bread)
This was set out in the Budget and the draft legislation is currently under consultation. Some businesses selling hot take-away food will have to charge more VAT in the future.
The widened definition of the term 'premises'
This was also set out in the Budget and the draft legislation is currently under consultation. Some businesses selling cold take-away food may have to charge VAT in the future.
The application of the Bog case to the UK
HMRC refuses to accept that the CJEU decision in Bog (C-497/09) can apply in the UK. The CJEU held that food should only be standard-rated if there is a predominant service element. This means that food (even when hot) supplied for immediate consumption should not be standard-rated. The first court case in the UK relying on the Bog principles is due to be heard in the Upper Tribunal this summer. Depending on the outcome, this case could have a huge impact on the UK treatment of both food and catering.
Ramifications of the Rank decision
In another decision (C-259/10) (actually about bingo) the CJEU stressed the importance of a level playing field and held that, generally, supplies that are perceived by the customer to be the same, must be treated the same for VAT. In the food world, this must surely mean that a customer pays the same VAT amount on all savoury crisp and chip style snacks and we expect further case law testing that principle.
Campaign for the reduced VAT rate for UK pubs and restaurants
Following successful campaigns in other countries, specifically in France, pubs and restaurants are currently lobbying for a reduced VAT rate for food and drink. While this would certainly benefit the leisure industry, this would be difficult to reconcile with the current VAT law, and a swift victory for this campaign would be surprising.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
