Owain Thomas, acting for HMRC, has won a case in the Upper Tribunal brought by Sub-One Limited, a member of the Subway franchise chain. Sub-One was represented by Philippa Whipple QC and Isabel McArdle.
Sub-One complained that its hot toasted sandwiches should not be subject to VAT at the standard rate, when many of its competitors, making identical supplies, did not charge tax, following a number of tribunal decisions in their favour in the past. The legislation at issue taxes hot takeaway food which has been heated for the purpose of being consumed hot, but does not tax food which has been heated for other purposes.
The case follows the Chancellor’s announcement of a review of the tax status of hot takeaway food which led to “Pastygate” – the public outcry over the plan to tax Cornish pasties – and a consequent change in the proposed legislation to maintain the VAT-free status of pasties.
The Upper Tribunal accepted that the leading Court of Appeal authority on the interpretation of the legislation, a case called Pimblett which dates back to 1987, had wrongly proposed a subjective test of the supplier’s purpose in heating the food, and that in order to comply with EU law it was necessary to apply an objective test of the supplier’s purpose. The Upper Tribunal also accepted that the EU principle of fiscal neutrality applied in principle to the domestic legislation.
However, the Court did not consider that there had in fact been any breach of that principle, either by the legislation (which in the Court’s view was capable of an EU compliant reading), or by any inconsistency of treatment amongst suppliers of hot toasted sandwiches. Sub-One is currently considering whether to appeal.