Tuesday 29 May 2012 8:28 pm

Greggs lifted by government rethink on VAT

SHARES in the UK’s biggest bakery chain Greggs leapt eight per cent yesterday as businesses welcomed the government’s U-turn on its controversial changes to the so-called pasty tax. Plans in the Budget would have seen foods charged 20 per cent VAT if they were sold at “above ambient temperature”, hitting shops such as bakers, which sell goods hot from the oven. After the rethink, only goods heated for sale, such as toasted sandwiches, will be hit by the tax from October. Greggs chief executive Ken McMeikan, one of the most prominent critics of the move, said he “applauded” the U-turn. “The government has given much clearer guidance on what the definition of hot food is. It’s great news for customers at a time when they are already experiencing difficult times.” But tax law firm Baker Tilly warned the saga may not yet be over, as the government has been left with a hole in its finances. “With income tax and National Insurance, VAT is one of the ‘Big Three’ revenue-raisers for the exchequer,” said tax partner George Bull. “With no upper limit on the standard rate of VAT, the autumn Budget may announce an increase to the current rate of 20 per cent.” And legal cases regarding VAT on takeaway food could also cause the government a headache. Subway franchisee Sub One is currently pursuing a legal challenge to the law on VAT, arguing its toasted sandwiches should not be taxed. The suit follows the success of German sausage seller Manfred Bog, who argued the tax unfairly discriminated against him, under the European principle of fiscal neutrality. “The courts will look at whether food should be subject to different levels of tax depending on whether it is hot or cold,” said KPMG’s Siddiq Musa. “If there is found to be a breach of the European principle, the historic position is that refunds would have to be made to the affected sellers.”