Some like it hot
Value Added Tax
It recently took 53 pages for a Tribunal to explain why takeaway toasted Subs and meatball marinara filling, as sold by fast-food outlet Subway, are subject to VAT.
The UK rules tax a supply of food and drink ‘in the course of catering’ and this includes the sale of hot food and drink for consumption off the premises. In the Subway case the test to be applied therefore boiled down to whether or not the products were ‘hot food’.
No big deal there, one might think. So why the 53 pages?
Well, because in the fiscal theme park of VAT, ‘hot food’ isn’t food that’s hot. It’s not that simple.
Hot food is food which has been heated ‘for the purpose of enabling it to be consumed at above ambient air temperature’ and which is above that temperature at the time the customer gets it. This statutory test is responsible for the otherwise unfathomable preoccupation of judges with the purpose of heating takeaway pies, pasties, pizza and panini.
Now, according to Subway, the purpose of heating the meatball marinara was to serve ‘high quality’ sandwiches, and to make the marinara sauce edible. Before heating, and on cooling, the marinara sauce was described as ‘thick, glutinous and unpalatable’. Sounds appetising, doesn’t it?
Enter the toaster (that well-known chamber for chemical reactions). A Sub was toasted not to make the food hot but to change the chemical nature of the ingredients – and therefore its flavour. (This argument had worked in the past for toasted Quiznos Subs and toasted bagels.)
The Tribunal had the benefit of evidence from a bevy of experts, including:
1. Professor Bronislaw Leon Wedzicha of the School of Food Studies and Nutrition, University of Leeds, who gave evidence on the chemical changes associated with the toasting of a Subway sandwich and marinating the meatballs with the sauce. (Some people have all the fun.)
2. Professor Liam Blunt, Taylor Hobson Chair of Surface Metrology at the School of Engineering, University of Huddersfield, who gave evidence on the temperature measurements of toasted sandwiches served at the Subway store in Huddersfield.
(For those of you who are not in the know, surface metrology is the measurement of small-scale features on surfaces and has nothing to do with the weather conditions in West Yorkshire, fascinating as they are.)
3. Dr Slim Dinsdale, an independent food safety and quality consultant, who also gave evidence on the temperature measurement of toasted sandwiches and commented on Professor Wedzicha’s report regarding the changes in the meatballs.
(I suspect that Slim doesn’t know that there are 560 calories in a six inch meatball marinara Sub.)
The conclusion drawn by the Tribunal from all this science was that a lukewarm toasted Sub was in fact hot, and so was the meatball sauce.
Other EU countries also struggle to identify when supplies of food become supplies of something else. This conundrum is set by the EU VAT rules, under which a reduced rate can be applied to foodstuffs. Herr Manfred Bog, a German sausage-seller, created a bit of a stir in the VAT world recently when he scored a sizzling victory before the European Court with his argument that sausage and chips sold from a mobile snack van were supplies of food subject to a reduced rate of VAT under the German legislation.
How much excitement can a tax lawyer stomach?
After all, it was only in January that a landmark decision was published on the vexed question of whether ferrets are pets for VAT purposes. In this case ‘Tribunal says yes’.
Tell that to Jennifer Aniston.
*** UPDATE – January 2015***
In July 2012 Subway lost their appeal to the Upper Tribunal against the decision of the First-tier Tribunal. In June 2014 the further appeal to the Court of Appeal was unsuccessful so there’s more to digest on the subject here! In my view both appeals were hopeless from the beginning. In January 2015 the Supreme Court refused permission to appeal against the decision of the Court of Appeal.
Tax lawyer specialising in business tax, SDLT and VAT
