Subway franchisee loses VAT hot food case

by Calum Fuller

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11 Oct 2012

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AN UPPER-TIER TRIBUNAL has dismissed an appeal over VAT charged on hot food brought by a franchisee of sandwich retailer Subway, meaning the levy should be charged on its heated subs.

The decision could see the global franchise forced to charge VAT at 20% on products such as its ‘meatball marinara' instead of leaving them zero-rated.

The ruling also calls into question existing case law on the VAT treatment of hot food, and could see the debate over the pasty tax resurface.

Subway's argument was that it was only heating the food in order to comply with health regulations, but the tribunal held that it was being heated so that it could be eaten above the ambient air temperature.

The case first came before tribunals in 2010, and was one of what is now more than 1,200 appeals from Subway franchisees challenging the VAT treatment of its hot food.

The ruling is seemingly at odds with a judgment made by the Court of Appeal in a case between John Pimblett & Sons and the Revenue in 1988. In that case, it was ruled that keeping pies warm after being cooked did not constitute the supply of 'hot food' – as that was not the intention of the supplier – and they could continue to benefit from being zero-rated

"The worrying aspect of this case is not just the defeat for Subway, but the fact that Pimblett can no longer stand as good law. This means that, if the tribunal is correct, VAT will be payable on all food that is kept warm," said Grant Thornton head of indirect tax Lorraine Parkin.

She added: "Although it's too early to say whether this will go to the Court of Appeal, it does seem to me that determining the tax system based on the customer's perception of why the food is being heated is not particularly objective, so there could be room for further argument."

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