After an 18-month battle with Customs & Excise, the Great American Bagel Factory has succeeded in changing its tax status, saving a lot of dough by convincing a tribunal its bagels were crunchy rather than hot.
‘Customs had ruled that the GABF supplies hot food and should therefore be subject to VAT of 17.5%,’ explained Vaugh Chown, partner and head of the VAT department at Levy Gee, the accountancy firm which advised the company.
But the GABF insisted the bagels were heated for the purposes of changing their texture, not to provide hot food.
‘The GABF doesn’t care whether the customer takes their bagels to the park or up ten flights of stairs to the office, [giving them time to cool], and therefore the company should receive a proper zero-rating,’ said Chown.
After extensive research on the field – which required sampling of the food – the tribunal ruled in favour of the GABF, agreeing the original intention of the company was not to sell hot food, but crunchy toasted bagels.
‘The zero-rating made a significant difference to the amount of VAT the customer will pay,’ said Chown.
With 17.5% VAT, GABF would have had to pay about £10,000 more in taxes. 52% the items sold by the are toasted bagels for takeaway.
The ruling is also likely to impact other caterers in similar situations. According to Chown: ‘It leaves the situation a little bit clearer as to what the intention of the client is when they supply the food.’