Does it matter if your food is hot or cold?

Now I’m not talking about the nutritional benefits of food. No, I’m talking about the cost to you of purchasing food.

The recent tax budget in the UK has caused a bit of a debate.

The background to matters is that, as is the case in a lot of countries, when food is sold in the UK it is zero rated for VAT purposes. In other words, there is no VAT charged on it.

The exception to this is any food which is sold as a “supply in the course of catering”. This means that whilst “food” bought at a supermarket does not have VAT added to it, food bought at a restaurant or at a takeaway does have VAT applied to it as it is a “supply in the course of catering”. The adding of the VAT to the cost obviously makes it more expensive to the individual customer.

So far it’s all fairly clear with in general terms, food having VAT added to it if it is to be consumed immediately whilst food purchased to eat later doesn’t have VAT added to it.

There have however been certain types of food which have had a somewhat “confused” existence.

“Pasties” for example are in effect meat and vegetable filled types of pie which originate from the south-west part of England. People would often buy pasties from bakeries just as they had been baked and the question was whether these items were food to be taken home to be eaten later (VAT zero rated) or food that was to be consumed immediately (VAT standard rated).

To date, the treatment has been one of zero rating but in the recent budget the government announced a proposal that any food sold above the ambient air temperature would be liable to VAT at the standard rate.

This would mean that if people bought a pasty that had just been cooked they would have to pay the VAT even if they were going to eat it several hours later at home after it had cooled down.

Whilst the additional tax revenue that would be generated by this approach would be relatively small, the amount of publicity that this is getting in the UK is significant.

The tax authorities issued a consultative document on budget day called “VAT: addressing borderline anomalies” and within this was the topic of hot take away food.

Because it’s a consultative document it’s not actually law at the moment. Instead, people can comment on the issue prior to it becoming law and there may well be some changes.

The closing date for comments on this is 4 May 2012 and no doubt there will be lots of pasty lovers closely watching the outcome.

The ExP Group