When is hot food hot food?
A recent VAT tribunal was asked to look at the definition of hot food.
The decision in the case of Subway One Limited v Revenue & Customs  UKFTT 487 (TC) clarified the UK law surrounding the application of VAT on hot food served over the counter, and serves as a useful reminder for retailers on what food products VAT should be charged on.
Subway argued that supplies of toasted sandwiches (subs) and meatball marinara filling were not ’hot food’ for the purposes of VAT and were therefore ’VAT zero-rated’, in that no VAT should be charged on the supply of these goods. However, the tribunal disagreed and found that VAT at the standard rate should be charged.
This case is not only significant for operators of Subway stores, but also for any forecourt operator selling similar toasted or heated products in the shops for consumption off the premises. The popular meat pies and pasties spring to mind.
Q: What do the current VAT rules in the UK say about supplies of food?
A: Supplies of food used for human consumption are ’VAT zero-rated’ under Group 1 of Schedule 8 of the Value Added Tax Act 1994 (VATA 1994) except where the supply is made in the course of catering.
A supply in the course of catering includes any supply of food for consumption on or off the premises. The Subway case was particularly concerned with what constitutes ’hot food’ as its sandwiches are prepared to be consumed off the premises.
Q: What constitutes ’hot food’ under the VAT rules?
A: ’Hot food’ is defined as "Food which or any part of which: has been heated for the purposes of enabling it to be consumed at a temperature above ambient air temperature; and is above that temperature at the time it is provided to the customer."
Q: Were the supplies of toasted subs and meatball marinara supplies of ’hot food’ for the purposes of VAT?
A: Yes. The Tribunal decided that both the toasted subs and the meatball marinara met the definition of ’hot food’ and therefore supplies of them were standard rated for VAT purposes.
Q: How did the Tribunal reach its decision in the Subway case?
A: It was agreed between the parties after much debate that the toasted subs and meatball marinara were heated to a temperature above ambient air temperature and that the temperature of the food was above ambient air temperature at the point of supply. With these facts agreed, the case hinged on the intention of the supplier of the food. Was the intention to serve food to the customer that was hot enabling it to be consumed by the customer at a temperature above ambient air temperature? It is irrelevant whether or not the food is consumed while hot, just that it is hot at the point of sale.
The tribunal found that both the toasted subs and the meatball marinara were less desirable to the customer if served cold (a number of expert witnesses were brought forward to give evidence on the effect on flavour of toasting subs and heating the meatball marinara) and that Subway made efforts to deliver the products to the customer so that they could be consumed hot. This was held to be serving ’hot food’ to customers, and therefore both products were subject to VAT at the standard rate.
Q: What does this mean for Subway and other operators selling similar types of ’hot food’?
A: Subway will now face a bill for the VAT that was due on the supplies of the toasted subs and meatball marinara in previous years. Retailers more generally will have to re-evaluate how they treat supplies of certain products in light of this decision. In addition, Subway and other retailers making similar supplies of ’hot food’ and currently not charging VAT will have to factor the additional ongoing VAT cost into the price of their products that now qualify as ’hot food’. This takes on a greater degree of significance with the recent VAT rate increase to 20%. We have ourselves seen the collapse of a new letting as a result of this case. Both landlords and tenants need to be aware of the effects of this case.
Ian Montgomery is a solicitor in the corporate tax department and Karen Mason a partner in the commercial property department of Boodle Hatfield.