The existing Her Majesty's Revenue and Customs (HMRC) reference notice on 'Catering and takeaway food' of November 2011 is extremely clear that pies and pasties are in the same category as other foods sold hot such as fish and chips and toasted sandwiches. All are subject to the standard VAT rate when it is intended that they should be eaten hot. Moreover, there is already a provision that any of these products may be zero rated if they are cooling down and are not intended to be eaten hot.
On discovering this, I could not understand what all the fuss had been about. I rang HMRC to ask whether its November reference notice had been updated since the Budget and someone had omitted to change the date. I was told that they had not. I asked why the Chancellor had included the subject in his Budget if the VAT situation was already clear and there was already an explicit provision for zero rating of freshly cooked foods put out to cool.
The HMRC man revealed something that had not been reported in any of the articles I had read, nor had it been mentioned by any minister when faced with embarrassing questions from the media. Apparently, the government had intended to close a loophole whereby some sellers of hot foods, normally subject to VAT, had been claiming that the reason for keeping their pies warm was to maintain the texture and create a freshly cooked aroma to stimulate the taste buds of their customers.
The Budget's proposal was merely an announcement of an intention to consult on anomalies in VAT borderlines and the hot pasty example was only one of a number where there had been litigation. These ranged from rental of hairdressers' chairs to repair of building. The pasties presumably made a more interesting story than the plight of hairdressers' chairs!
It seems what was portrayed as a U-turn could simply replace the problematic loophole with another potentially problematic loophole, which would not require changes to the rules. These currently say that cold food must be sold at below ambient temperature.
In practice, it is highly likely that many pies and pasties will continue to be sold above that temperature to suit customer preferences. And how many customers would be prepared to wait until the pie had cooled to below 20°C to avoid the VAT? It would be far simpler to rate all takeaway food at zero.
Clare Cheney
Director general
Provision Trade Federation