Take-away restaurants have expressed dismay at the Government's move, announced in yesterday's Budget, to close a loophole relating to the way in which VAT is charged on hot take-away food.
Chancellor George Osborne alluded to the proposed changes in his address to the House of Commons yesterday, and documents on HMRC's website show that the definition of "hot take-away food" is to be changed so that the standard 20% rate of VAT is chargeable on "all food (with the exception of freshly baked bread) that is above ambient temperature when provided to the customer".
The HMRC said that the rules needed changing because the borderline between hot take-away food (standard-rated) and cold take-away food had been the subject of litigation for a number of years, with some retailers avoiding paying VAT on their food, arguing that the purpose of heating it was to improve its appearance, or to comply with health and safety regulations, rather than to enable it to be consumed hot.
This has meant that while some retailers and take-away outlets charge VAT on the sale of hot chicken products, hot pies and toasted sandwiches, other retailers and bakery chains sell similar products zero-rated.
Nick Troen, owner of small Mexican burrito restaurant group Poncho 8, which currently has two outlets in the City of London and is planning two further sites, complained: "Effectively this is the Government punishing retailers who prepare better-quality, healthy hot food over those who pre-package cold food and leave it on the shelf for hours. It doesn't make any sense!"
And Kerry Brennan of Soho-based fish and chip shop Golden Union, added: "The chancellor was clutching at straws when he decided to find money by targeting food outlets that serve hot food. We know that sushi is in vogue but cold fish and chips certainly isn't - and nor will this new VAT charge be, with us and our customers alike."
Meanwhile, British Hospitality Association (BHA) deputy chief executive Martin Couchman said he thought the decision by HMRC was designed to pre-empt any unfavourable future decisions in tribunals against chains such as Subway and Greggs, attempting to ensure they could sell their food zero-rated.
Alongside the proposed changes on the definition of hot take-away food, the HMRC also indicated it was planning to tighten rules on how "premises" were defined, to ensure that VAT was charged on food consumed on tables and chairs on the pavement outside a café as well as in food courts in shopping centres, where they are shared with other retailers.
Once again, the borderline between on-premises consumption of food (standard-rated) and off-premises consumption of cold food (zero-rated) has been the subject of litigation, with disputes arising over whether food courts in shopping centres form part of a retailer's premises.
By Neil Gerrard
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