Morrisons lose long VAT case

Background

With yesterday’s ruling that rotisserie chicken should attract VAT at standard rate we wanted to explain why.

In 2012 George Osborne announced the so call ‘pasty tax’.  He argued that food served above ambient temperature should be standard rated for VAT.  This was quite a strange metric to us as it was a variable level to be assessed against. After a media campaign by some of the tabloid this was changed to food intended to be consumed hot and food sold on the cool down.  The focus of the media campaign was the fact if this change was implemented then a Greggs pasty would cost consumers more.

The NFFF was involved in this situation due to us being part of a protective claim by KPMG on the back of a German sausage seller Manfred Bogg winning his argument that he did not add value by providing a service but was simply producing food.  We were contacted by a Treasury official, Rupert (who we subsequently found out was the Chancellor’s Private Secretary) to field some of the media calls which we felt was an attempt to pitch us against Greggs and on the wrong side of public opinion.  The NFFF contacted the then CEO of Greggs and we agreed neither of us would appear.

The Government then performed a U-turn and changed the ruling so that it was about food being intentionally hot or incidentally hot.  This meant that supermarket chicken from the rotisserie was then brought withing the scope of VAT.

Incidentally Hot vs Intentionally Hot

When it comes to takeaway food, “incidentally hot” means that the food is hot by circumstance rather than by intention.

In practice, it refers to takeaway food that:

• Is not cooked or prepared to be served hot, but
• Becomes warm or hot as a side effect of preparation, packaging, or holding, such as being freshly made, sealed, or transported.

Examples:

• A cold sandwich that feels warm because it was wrapped immediately after preparation
• A bakery item that is meant to be eaten at room temperature but is warm because it just came out of production
• Packaged food warmed slightly due to proximity to hot items during delivery

Key distinction:

• Intentionally hot food → cooked and held hot for immediate consumption
• Incidentally hot food → not intended to be hot, but happens to be warm at the point of sale

This term is often used in food safety, regulation, and inspection contexts to clarify temperature requirements and handling rules.

Conclusion

Vat is still such a complicated tax and over the years there have been so many legal cases about whether products should be vatable or not.  This law did help to level the playing field slightly by adding VAT to hot food in the supermarkets.  It did damage many medium sized deli / bakery chains as the likes of Greggs are busy enough to sell their products in the allotted 90 minutes outlined by food safety laws and stand along bakeries etc are likely to have been trading below the VAT threshold whereas small chains had to make the decision as to if they should keep their heated displays on and charge VAT or sell pies that may be cold.

We have tested if fish and chip shops could be zero rated if the food is cooked to order and not kept in a heated cabinet but this was dismissed by HMRC.

Our position is that the VAT system is outdated and needs an overhaul.  The hospitality sector has mostly zero rated inputs and mostly standard rated outputs. We are also heavily reliant on labour, often providing the first place of employment for young people.  With unemployment on the increase and it being disproportionately young people who cant find work, a rethink on hot tax is applied to the sector can not only help to solve that issue but also generate economic growth.   The recent budget was a missed opportunity to make the changes needed and turn the sector around.