From October, supermarkets and other retailers such as Greggs will be forced to start paying 20 per cent VAT on any type of takeaway food served to customers “above the ambient air temperature”.
At present, the VAT is only charged on hot takeaway items. Retailers have avoided the loophole by arguing that, because products are baked on the premises and not “kept warm” for consumer take-away purposes, they therefore count as cold products.
They have also claimed that their food is served hot to preserve its quality rather than to be eaten – like pies which might fall apart if cooled.
A Greggs spokesperson said: “We do not believe that our freshly baked savoury products should be subject to VAT and we will be making strong representation to the government regarding the proposed changes.”
A Subway spokesperson was unavailable for comment, but some commentators said that because the filling is hot when served, there was a risk its sandwiches could fall into the VAT category.
HMRC estimates the change could add an extra £105m in annual revenues to its coffers by 2013-14.
Under the proposals laid out in the Budget, George Osborne said the government would be cracking down on other “loopholes and anomalies in our VAT system” that apply to large static caravans, nutritional drinks, and alterations to listed buildings.
Stephen Coleclough, tax partner at PwC, said these weren’t loopholes but “cases that HMRC have lost in the past” – labelling the government as “sore losers”.
“The government is trying to remove anomalies but has only introduced new ones which will no doubt lead to yet more litigation, which is the one thing the government is trying to avoid,” he said, adding that freshly baked bread “bizarrely” is not caught in the net.
The changes are expected to affect up to 3,000 firms, with costs most likely to be passed to lunchgoers.