Hot Takeaway Food (VAT)

Rob Wilson Excerpts

Wednesday 23rd May 2012 Westminster Hall

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

It is a great pleasure to serve under your chairmanship, Mr Scott. I congratulate my hon. Friend the Member for St Austell and Newquay (Stephen Gilbert) on securing this debate and on his thoughtful and constructive speech. I thank all those who have contributed to the debate, including my hon. Friend the Member for North Cornwall (Dan Rogerson) and my hon. Friend the Member for South East Cornwall (Sheryll Murray), whom I congratulate in particular on her expertise on the matter. I am also grateful to my hon. Friend the Member for Amber Valley (Nigel Mills) for providing his expertise on tax, rather than on pasties. I also thank the hon. Member for Rochdale (Simon Danczuk) and the hon. Member for Bassetlaw (John Mann), who gave a characteristically passionate and, at times, entertaining speech.

Since the Budget, Her Majesty’s Revenue and Customs has been running a consultation on addressing a range of VAT anomalies, including the treatment of hot takeaway food. I am well aware that the changes that we have announced to the VAT treatment of hot food have attracted a considerable amount of attention. Indeed, I have had meetings with my hon. Friends the Members for St Austell and Newquay and for Camborne and Redruth (George Eustice) and representatives of the Cornish pasty industry.

[Mr Rob Wilson (Reading East) (Con)]

The definition of hot food has caused much uncertainty, not least for Auntie Anne’s pretzel company in my constituency, which I visited last week. The company has put on hold quite big expansion plans because having to charge VAT would put it in competition with a whole new set of fast food outlets. The pretzels are baked on the premises from a dough mixture, and the company needs some clear guidance from Her Majesty’s Treasury that it will not be liable to VAT so that it can get on with its growth plans and with creating jobs in the local area.

[Mr Gauke]

I am grateful for that intervention. There is a carve-out in this measure that relates to bread. My hon. Friend refers to pretzels made from a dough mixture. HMRC will provide guidance on the definition of bread, so that matter will be covered once final decisions have been made.

Before I turn to some of the arguments against the proposal, I should like to step back and remind hon. Members of why we have proposed this change. As I announced to the House on 18 April, we extended the consultation period until last Friday in the light of the responses received and I have, of course, been listening to the contributions to this debate and will ensure that they are taken into account in the Chancellor’s decisions.

Ensuring that VAT will apply to the sale of all hot food—to the extent that it does not already do so—is one of a series of VAT measures announced in the Budget designed to make the VAT system fairer to all traders, and to make it easier to administer and comply with.

The current rules on the VATability of hot takeaway food have been made particularly complex and unfair by a patchwork of different legal decisions over the decades, as my hon. Friend the Member for St Austell and Newquay pointed out. VAT has always applied to food consumed on the supplier’s premises, notably in restaurants and cafes, and was extended to hot takeaway food in 1984. The definition of hot takeaway food in the 1984 legislation is that the food

“has been heated for the purposes of enabling it to be consumed at a temperature above ambient air temperature”

and that it

“is above that temperature at the time it is provided to the customer.”

There have been repeated efforts since the 1980s to chip away at this boundary. A number of businesses have argued in litigation that, although the food they provide to their customers is hot and is taken away, it should not be taxed as “hot takeaway food”, but it should instead be zero rated.

Some have argued that, in heating the food, their intention was not to provide their customers with food to be eaten hot, but to follow rules of hygiene, to finish the cooking process, to provide evidence of freshness, to create an aroma, or to improve appearance, crispiness or texture of the product. Such arguments have not always been successful, but where they have been, they have allowed some businesses to secure VAT-free treatment for a range of hot food products such as hot rotisserie chickens, meat pies, pasties and panini. However, other businesses have continued to apply VAT to the similar hot food products that they sell. They have accepted, or the courts have ruled, that their intention is to heat their food products so that their customer can eat them hot. Under the current rules, the VAT rate applied to hot takeaway food depends on the particular supplier’s purpose in heating the food.

In reference to a point made by my hon. Friend the Member for Montgomeryshire (Glyn Davies), a small independent fish and chip shop will have to charge 20% VAT on its hot chicken, but a major supermarket will argue that its rotisserie chickens are zero rated. One baker who keeps his sausage rolls in a hot cabinet to provide his customers with a hot snack will charge tax, but the baker next door who also keeps them hot and argues that this is to maintain an appealing aroma will claim that they are zero rated.

The current situation is unfair, and it is right that we seek to change it. There was some agreement on that point from at least some hon. Members. That is why we are introducing new rules to ensure a level playing field. We have proposed the removal of the subjective element of the zero-rate definition, which has led to these anomalies, to provide more consistency in the taxation of hot food. As I mentioned earlier, we are adding a simple carve-out that bread, irrespective of its temperature, will not be liable.