Pasty Tax changes

If they are kept hot, re-heated so as to be hot or sold as 'hot' or in heat retention packaging then VAT would be chargeable.

HMRC are implementing from today secondary legislation will amend Note 3 so that the current test for “hot takeaway food” which is based on the purposes for which food is heated becomes a simpler and more objective test based on whether the food is above ambient air temperature at the time it is provided to the customer.

We do not see the collection of tax on hot food as any different from what most butchers would already be doing. Most selling takeaway food already do this. The debate comes around pastries or hot chickens cooling off in ambient. As far as we understand this, VAT is not chargeable but we have asked HMRC for a ruling since in mid winter some products will never get below ambient!

Our question to HMRC: How is this to be applied in Scottish butchers shops when ambient temperature in winter even within the shop, can be below zero? Surely there should be a set temperature?

Our case reference is 10890964. HMRC aims to reply to you within 15 working days but this may take longer during busy periods. Please be aware that submitting duplicate or chase up enquiries may add to response times.

If your enquiry is urgent you may wish to contact the HMRC VAT and Excise Helpline on Tel 0845 010 9000 (8.00 am to 6.00 pm, Monday to Friday, closed bank holidays).

Below is the relevant guidance, in particular and if nothing else please read 4.11

2.2 What are the new rules (from 1 October 2012)?

A number of objective tests have been added to the existing test in 2.1 to help ensure that hot takeaway food is taxed consistently. Under the new rules, the sale of food is standard-rated if:

the food (or any part of it) is hot at the time that it is provided to the customer (“the precondition”) and one or more of the following 5 tests is satisfied

Test 1: It has been heated for the purposes of enabling it to be consumed hot (ie the current test).
Test 2: It has been heated to order.
Test 3: It has been kept hot after being heated.
Test 4: It is provided to a customer in packaging that retains heat (whether or not the packaging was primarily designed for that purpose) or in any other packaging that is specifically designed for hot food.
Test 5: It is advertised or marketed in a way that indicates that it is supplied hot.
More guidance on how to approach these tests is set out below.

3. The precondition: the food (or any part of it) is hot at the time that it is provided to the customer
This ensures that, under the new rules (as under the current rules), only food that is hot at the time that it is provided to the customer is standard rated.

3.1 What is meant by “hot”?
Something is hot if it is at a temperature above the “ambient air temperature”. This definition forms part of the current rules which suppliers of hot food should be familiar with. Generally speaking, businesses do not need to specifically check whether the precondition is satisfied as it is clear whether or not the food is hot at the time they provide it to the customer. In some cases, it may be necessary to check but this is the case under the current rules.

3.2 Why refer to “any part of it [a food product]” being hot?
This reflects the current rules. In some cases, only part of a product will be hot and the current and new rules ensure that such products are standard-rated provided the conditions in para 2.2 are met.
Example 1: A business sells bacon rolls. The bacon is hot but the roll is cold. As part of the product is hot (the bacon), the legislation ensures that the whole product (the bacon roll) is standard-rated.

3.3 What is meant by “at the time it is provided to the customer”?
This wording is contained in the current legislation and is the time that the product is handed over to the customer.
Example 2: A customer picks up a hot chicken from the deli counter in a supermarket, which has cooled down to ambient air temperature by the time he or she comes to pay for it at the checkout. In this case, the time at which the chicken is provided to the customer is the time that it is handed over to the customer at the deli counter (ie when it is hot), not the time when the customer pays for the chicken at the checkout.
Example 3: A customer orders and makes payment for a pizza over the telephone before it has been cooked. He or she collects the pizza 20 minutes later when it has been cooked and is hot. In this case, the time at which the pizza is provided to the customer is the time that the pizza is handed to the customer on collection (ie when it is hot), not the time when the customer orders the pizza over the telephone.

4. The 5 tests
The tests supplement the precondition to ensure that hot takeaway food is taxed consistently at the standard rate. In practice, it is likely that the sale of the food will satisfy more than one of these tests. In all cases references to “heated” include “cooked” and “reheated”.

Test 1: The food has been heated for the purposes of enabling it to be consumed hot (ie the current test)

4.1 How does this test work?
This is the current test for establishing whether hot takeaway food is standard-rated and ensures that all hot takeaway food that is currently standard-rated continues to be so. Case law has established that, taking account of all
relevant facts and circumstances, it is the intention or purpose of the supplier (and not the customer) in heating the food that is the determining factor. This means that the sale of products that have been cooked specifically for consumption whilst still hot (as a result of being freshly prepared, baked, cooked, reheated or kept warm) are standard-rated. This is in contrast to products that are not intended to be eaten while hot and are sold warm simply because they happen to be freshly baked and are in the process of cooling down, which are not affected by this test.

4.2 What are examples of hot food under this test?
Examples of products that are standard-rated under this test include:

chips, fish and chips, and similar items
Chinese, Indian takeaway meals, pizzas, kebabs etc
baked potatoes with a hot or cold filling
hot dogs and hamburgers
pies, rolls, sausage rolls, pasties and similar items (see para 4.11 for instances when these products will remain zero-rated)
tea, coffee, chocolate and other hot drinks
hot soup

The remaining tests are designed to address any inconsistencies that have arisen as a result of case law by minimising the need to consider the supplier's purpose in heating the food.

Test 2: The food has been heated to order
4.3 How does this test work?
This test confirms that the sale of food that has been heated to the customer's order is standard rated.

4.4 What are examples of hot food under this test?
Common examples of food that may be heated to order and are therefore standard-rated include:

toasted bread, sandwiches, paninis, teacakes and similar items
garlic bread
pizzas
hamburgers
kebabs

Test 3: The food has been kept hot after being heated
4.5 How does this test work?
This test confirms that food that is kept hot after being cooked, heated or reheated is standard-rated. This includes instances where a supplier of hot takeaway food stores the food in an environment which provides, applies or retains heat, or takes other steps to ensure that it remains hot or to slow down the natural cooling process after it has been heated. In practice, this will mainly affect products that are kept warm in heated cabinets (for example under heat lamps), on spits, in hot water or on hot shelves or trays. It will also include any products kept warm in cooling down ovens or other appliances that slow down the rate of cooling.

4.6 What are examples of hot food under this test?
Examples of products that are standard rated under this test include:
freshly baked croissants, pretzels and similar items that are kept hot in a heated cabinet
hot dogs kept hot in water or on a tray
hamburgers kept hot on a hot shelf
doner kebabs kept hot on a spit
cooked chickens kept in a heated cabinet or on a hot tray
meat pies kept in cabinets during a controlled cooling process

Test 4: The food is provided to a customer in heat retentive packaging
4.7 How does this test work?
This test confirms that food that is provided to a customer in packaging that retains heat (whether or not the packaging was primarily designed for that purpose) or in any other packaging that is specifically designed for hot food is standard-rated.
In practice, this will mainly affect products that are sold in specialised packaging such as foil lined bags and insulated containers including specially designed cardboard boxes. It will not affect products that are sold in ordinary paper bags or similar packaging.

4.8 What are examples of hot food under this test?
Examples of products that are standard-rated under this test include:

naan bread and garlic bread sold in a foil lined bag
Chinese and Indian takeaway meals sold in foil lined containers
pizza sold in specially designed cardboard boxes
cooked chickens that are sold in heat retentive packaging or packaging designed to prevent leakage of fluids or grease

Test 5: The food is advertised or marketed in a way that indicates that it is supplied hot

4.9 How does this test work?
This test confirms that takeaway food that is advertised or marketed in a way that indicates that it is supplied hot is standard-rated. This will be established by examining the nature of the advertising or marketing campaign and whether this indicates that the takeaway food in question is sold hot. This could include pictures of the products showing steam rising from them. “Advertised or marketed in a way that indicates that it is supplied hot” does not include advertised or marketed as “freshly baked”.

4.10 What are examples of hot food under this test?
Examples of products that are standard rated under this test include: Rotisserie chickens, roasted chestnuts or soup which, in each case, are advertised or marketed as “hot”.

4.11 What types of hot food are not caught by these tests and remain zero rated?
The new tests ensure that the vast majority of hot takeaway food is standard-rated. The exception is food that is either not hot at the time it is provided to
the customer or which is hot at the time it is provided to the customer but does not satisfy any of the above tests. For example, freshly baked bread or bakery products that are incidentally hot at the time that they are sold but which are frequently eaten cold (i.e. when they have cooled down to ambient air temperature).
Businesses selling food that is hot at the time it is provided to the customer will need to work through each test to confirm that none apply before zero-rating their products. This is illustrated in the following examples.
Example 4: A retailer sells a Cornish pasty that has been baked off and then left to cool naturally but is still hot at the time that it is provided to a customer (and so the precondition is satisfied). However, the retailer does not intend that the pasty will be consumed hot by the customer (Test 1 is not met); it has not been cooked to order (Test 2 is not met); it has not been kept hot after being cooked (Test 3 is not met); it has been provided to the customer in a standard paper bag (Test 4 is not met) and it is advertised as “freshly baked” (Test 5 is not met). As none of the tests are satisfied, the sale of the pasties is zero-rated.
Example 5: The retailer in example 4 decides to keep its pasties under heat lamps to slow the cooling process. In this example, Test 3 is met as the pasties are being kept hot after they have been cooked and the sale of the pasties is standard-rated.
Example 6: The retailer in example 4 decides to advertise its pasties as “hot” rather than “freshly baked”. In this example, Test 5 is met and so the sale of the pasties is standard-rated.
Example 7: A retailer bakes batches of fruit pies, tarts, cakes, buns and bread for sale throughout the day. None of these products is baked with the intention of being eaten hot, baked to order, kept hot after being baked (they have been allowed to cool naturally), provided in heat retentive packaging or advertised as “hot”. The sale of all these products is zero-rated as, even
where they are hot at the time they are provided to the customer, none of the 5 additional tests is satisfied.
Example 8: A retailer sells hot freshly cooked chickens that have not been heated for the purposes of enabling them to be consumed hot, have not been cooked to order, have not been kept hot after cooking (they have been allowed to cool naturally), are provided to customers in specially designed (foil lined) bags designed to prevent the leakage of fluids and grease from the chicken, and are not advertised as “hot”. The sale of these hot chickens is standard rated as Test 4 is met as the chicken is provided to customers in packaging that is specially designed for hot chickens.
Example 9: A retailer sells joints of beef that are kept hot in a cabinet after roasting. The sale of these joints is therefore standard-rated as Test 3 is met. At the end of the day, the retailer removes the joints that have not been sold from the heated cabinet. These are sold cold next day or are used to make cold takeaway beef sandwiches. As they are not hot at the time that they are provided to the customer the “precondition” is not met and so their sale is zero-rated for VAT purposes.

Who can I contact for further information?

If you have a query please ask SFMTA first and if you have been unable to find the answer there please contact the VAT helpline on 0845 010 9000.
The Helpline is available from 8.00am to 6.00pm, Monday to Friday.
If you have hearing difficulties, please ring the Textphone service on 0845 000 0200.

Attachments:

• Hot+food+and+premises.pdf