Budget 2012 – Application of VAT to hot takeaway food

In this year’s budget, Chancellor George Osborne stated that “at present, soft drinks and sports drinks are charged VAT; sports nutrition drinks are not. Hot takeaway food on high streets has been charged VAT for more than 20 years; but some new hot takeaway products in supermarkets are not.” The stated intention of the current budget is to remove some of the “loopholes and anomalies” in our VAT system in the food and drink sector. However, some within industry are concerned that this indicates a gradual erosion of zero ratings.

The Budget 2012 seeks to close the perceived loophole in VAT on food by making all food which is hot when it is sold subject to the standard rate of VAT, which is 20 per cent, (with the exception of freshly baked bread.) This will increase the cost to the consumer of a number of popular warm takeaway consumable items such as the sausage roll and rotisserie chicken.

This contentious issue was subject to a European court ruling in March 2011 in Manfred Bog and others. The case sought to distinguish between food sold as goods (eligible for Germany’s reduced rate of VAT) or as a catering service (subject to full VAT). The court examined the sales of a variety of hot food businesses, such as outdoor hot food stands and cinemas. It decided that sales of hot food were supplies of goods, as long as any services provided with it were minor and ancillary (e.g. stand-up food counters would be supplies of goods and eat-in restaurants with cutlery, waited tables etc. would be an overall supply of services.) This case resulted in some challenges in the UK for overpaid vat on hot takeaway food which the budget proposal now seeks to resolve.

Based on this temperature threshold, the question of whether the provision of a self-service grill or microwave within an establishment might constitute a ‘service’ might be the next point of debate for UK retailers.