FAST food chain Subway is preparing to recommence battle with HM Revenue & Customs over the decision to charge VAT on toasted sandwiches, in a move that could reheat the furious row that surrounded last year’s pasty tax.
The company has won the right to take a test case to the Court of Appeal, despite a judge ruling in October that it is fair to levy a 20 per cent sales tax on toasted subs such as its meatball marinara sandwich.
Subway argue this interpretation of the law is illegal because it puts them at an unfair disadvantage when competing with other high-street fast food rivals, such as pasty shops.
The dispute centres on the definition of hot food. Items that retain heat from the cooking process – such as a pasty baked on the premises and left to cool while on display – have traditionally not been classed as hot food and so escape the tax.
Food that is heated specifically for the benefit of the customer – such as rotisserie chickens and most takeaway meals – has always attracted VAT.
However there is a grey area regarding cold foods that are warmed to “above ambient temperature” – such as a toasted sub – prior to consumption.
An attempt was made to clear up this confusion by introducing VAT on most pasties and hot pies in the 2012 Budget. However this collapsed after chancellor George Osborne was forced into an embarrassing U-turn, following a successful campaign led by bakery firm Greggs.
“HMRC understands that Subway has been given leave to appeal, however we cannot make any further comment while litigation is ongoing,” a spokesman said yesterday.