The Pasty Tax

THE SALE OF FOOD AND DRINK

The Law:  All the law is to be found in the VAT Act 1994 which states the supplies of goods and services that can be zero rated.

  • General sale “for human consumption”
  • In the course of catering
  • Food processing services

General sale

HMRC VAT notice lists in great detail the rate of VAT applicable to basic foodstuffs, ingredients, baking ingredients and processed food, whether or not canned, frozen or cooked. Bakery products; loaves, cakes, biscuits.  Confectionery ; chocolate, sweets and chocolate biscuits.

Cooked products

The sticking point at the moment is with regard to whether or not the processed food is sold hot or cold. HMRC has always stated that “hot” food is where the temperature of the food is just above room temperature.  The VAT notice goes on to state:

Many bakery products, particularly bread, pies, pasties and other savouries, are baked on the retail premises, and are sold whilst still hot. If you sell products that are incidentally hot simply because they are freshly baked and are cooling down, and you have no intention of supplying them to be eaten whilst still hot they can be zero-rated. However, if you sell hot food specifically for consumption whilst still hot, then this is a supply in the course of catering and standard-rated.

If you put the product on the shelf with no further means of keeping it warm to be purchased and eaten off the premises, the sale is zero rated.  If however, the item is put in any kind of cabinet to heat or retain heat the supply is Standard Rated.

The same applies to other cooked food, to be taken away to eat.  I have not looked at the finer points regarding cooked chicken etc and the “foil bags” that supermarkets use. It would depend on if they are “heat retaining”.