Shares in Greggs, the baker, were reported to have ‘bounced back’ this morning after the government announced that it had reconsidered its proposals to apply VAT to all hot takeaway food.
Shares in Greggs, the baker, were reported to have ‘bounced back’ this morning after the government announced that it had reconsidered its proposals to apply VAT to all hot takeaway food.
VAT will be applied to food that is kept hot or marketed as hot, but not to food left to cool naturally, the Exchequer Secretary to the Treasury said yesterday in a letter to Andrew Tyrie, Chairman of the Commons Treasury Committee.
David Gauke said the recent consultation on ‘borderline anomalies’ in the VAT system had shown that there were anomalies to be addressed in the treatment of hot take-away food. But the ‘proposed pragmatic approach’ to the treatment of food cooling down would involve a number of burdens for businesses.
Simon Baxter, Head of Ernst & Young’s Indirect Tax Retail Team, said the announcement would be ‘greeted with a sigh of relief’ by retailers such as bakeries, delicatessens and supermarkets. But it did not deal with ‘any of the historic issues’ surrounding the VAT treatment of freshly cooked products, he said.
‘Although baked products that are cooling back down to an ambient temperature will continue to be VAT free, there will still be arguments about the way in which products such as pasties and sausage rolls are held out for sale – are they hot or just cooling down? There’s also a risk it could open up a can of worms about the VAT treatment of other items. Products such as paninis, which require some form of toasting to make them palatable, may continue to be a cause of contention for retailers and HMRC.’
Stephen Coleclough, Tax Partner at PwC, said the ‘pasty tax’ issue had highlighted anomalies in the system and reform was long overdue.
‘The UK has one of the widest zero-rated VAT bands in the EU and this creates many apparent quirks, for instance caviar is zero-rated while ice cream has VAT at the standard rate but can be zero-rated when part of a cake,’ he said.
‘Introducing a single rate of VAT on food, providing care is taken to ensure the lower paid are no worse off from the changes, could bring economic benefits. Now is the time for a proper review of VAT to create a simpler and more efficient system.’
Static holiday caravans
The government has also abandoned plans to ensure that the sale of all holiday caravans is standard-rated while ‘preserving the zero rate for residential caravans’.
Gauke told Tyrie that the VAT zero rate was only ever intended for the sale of residential caravans, but over the years many static holiday caravans had come to benefit from it.
‘Having consulted on a standard test for residential caravan accommodation we are satisfied that the boundary between residential and non-residential caravans is not clear cut,’ he said.
‘We will therefore take a stepped approach ... Council tax is not paid on static holiday caravans but nor are they subject to any VAT. We will therefore charge VAT at a permanent intermediate rate of 5% on static holiday caravans to reflect their position between permanent residences that are not liable for VAT and other caravans that are liable for standard rate VAT.’
‘Common sense’
George Bull, Senior Tax Partner at Baker Tilly, said: ‘We welcome common sense prevailing on the headline-grabbing pasty and caravan taxes. These taxes would have created an even greater burden for British businesses as well as for the overstretched local consumer.
He warned, however, that the move could mean that the UK ‘faces a further VAT increase later this year’.
Shares in Greggs, the baker, were reported to have ‘bounced back’ this morning after the government announced that it had reconsidered its proposals to apply VAT to all hot takeaway food.
Shares in Greggs, the baker, were reported to have ‘bounced back’ this morning after the government announced that it had reconsidered its proposals to apply VAT to all hot takeaway food.
VAT will be applied to food that is kept hot or marketed as hot, but not to food left to cool naturally, the Exchequer Secretary to the Treasury said yesterday in a letter to Andrew Tyrie, Chairman of the Commons Treasury Committee.
David Gauke said the recent consultation on ‘borderline anomalies’ in the VAT system had shown that there were anomalies to be addressed in the treatment of hot take-away food. But the ‘proposed pragmatic approach’ to the treatment of food cooling down would involve a number of burdens for businesses.
Simon Baxter, Head of Ernst & Young’s Indirect Tax Retail Team, said the announcement would be ‘greeted with a sigh of relief’ by retailers such as bakeries, delicatessens and supermarkets. But it did not deal with ‘any of the historic issues’ surrounding the VAT treatment of freshly cooked products, he said.
‘Although baked products that are cooling back down to an ambient temperature will continue to be VAT free, there will still be arguments about the way in which products such as pasties and sausage rolls are held out for sale – are they hot or just cooling down? There’s also a risk it could open up a can of worms about the VAT treatment of other items. Products such as paninis, which require some form of toasting to make them palatable, may continue to be a cause of contention for retailers and HMRC.’
Stephen Coleclough, Tax Partner at PwC, said the ‘pasty tax’ issue had highlighted anomalies in the system and reform was long overdue.
‘The UK has one of the widest zero-rated VAT bands in the EU and this creates many apparent quirks, for instance caviar is zero-rated while ice cream has VAT at the standard rate but can be zero-rated when part of a cake,’ he said.
‘Introducing a single rate of VAT on food, providing care is taken to ensure the lower paid are no worse off from the changes, could bring economic benefits. Now is the time for a proper review of VAT to create a simpler and more efficient system.’
Static holiday caravans
The government has also abandoned plans to ensure that the sale of all holiday caravans is standard-rated while ‘preserving the zero rate for residential caravans’.
Gauke told Tyrie that the VAT zero rate was only ever intended for the sale of residential caravans, but over the years many static holiday caravans had come to benefit from it.
‘Having consulted on a standard test for residential caravan accommodation we are satisfied that the boundary between residential and non-residential caravans is not clear cut,’ he said.
‘We will therefore take a stepped approach ... Council tax is not paid on static holiday caravans but nor are they subject to any VAT. We will therefore charge VAT at a permanent intermediate rate of 5% on static holiday caravans to reflect their position between permanent residences that are not liable for VAT and other caravans that are liable for standard rate VAT.’
‘Common sense’
George Bull, Senior Tax Partner at Baker Tilly, said: ‘We welcome common sense prevailing on the headline-grabbing pasty and caravan taxes. These taxes would have created an even greater burden for British businesses as well as for the overstretched local consumer.
He warned, however, that the move could mean that the UK ‘faces a further VAT increase later this year’.
