In a case reminiscent of the "Pastygate" tax row earlier this year, Subway's popular "Toasted Sub" sandwiches have come under legal scrutiny over whether they should be subject to VAT.
A leading tax judge has ruled that the Toasted Subs, and the meatball marinara, are heated for the customer's enjoyment, not for health reasons, and so are subject to VAT at the full rate of 20%.
High Court judge Mr Justice Arnold, sitting in the Upper Tribunal (Tax Chamber), rejected an appeal by a Huddersfield-based Subway franchisee, which claimed it was forced to close because it was liable for VAT on its toasted sandwiches while its competitors were not.
Backing a tribunal ruling in favour of the taxman, the judge said that it was "beyond dispute" that the Toasted Subs and the meatball marinara were "heated for the purposes of enabling it to be consumed at above ambient temperature".
He continued: "It seems clear that the majority of customers wanted the toasted Subs warm, and thus appetising. They did not want cold pre-toasted Subs, which would be much less appetising.
"It follows that I consider that the Tribunal was correct to conclude that both toasted Subs and meatball marinara should be subject to VAT at the standard rate."
Franchisee Sub One Ltd - which brought the test case as one of 1,200 Subway franchisees seeking to appeal against the VAT treatment of the chain's sandwiches - had claimed that they were heated in order to comply with food safety legislation, and as a result should not be subject to VAT.
Had the tax authorities lost the case, it would have been a further blow to the Treasury's attempts to close the VAT loopholes on food, following its climbdown in response to the controversy over plans to charge VAT on heated pasties.
By Court reporter
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