VAT's the way to get your lunch cheaper

2 May 2011

ednasVAT is a funny old thing. Mostly it's charged at 20%, but sometimes at 5% and sometimes at 0%. Now an interesting tax case from Germany could make your lunch cheaper. But probably won't. Let me explain...

In the UK, most food is zero rated*, which means that although it is chargeable to VAT, it is charged at 0%. Our favourite rate of tax. However, catering services are standard rated, so if you buy food in an eatery and use their furniture to rest your bottom and elbows, you will be enjoying a side of VAT with your order. Note that catering services does not include cold takeaway food- this is just 'food' and is normally zero rated. This is why places like coffee shops often have different takeaway and eat-in prices for sandwiches and other cold food. However, in the UK takeaway hot food is normally standard rated too, just to make it even more complicated.

Anyway, a recent decision in the European Court of Justice in the Bog case (no, I haven't made that name up) could mean that all food supplied for "immediate consumption" is treated the same.  The case was brought by a German burger van owner, who protested after being forced to charge extra for food that customers ate while sitting on chairs by his van while those who ate standing up were charged less.

The court concluded that this was, indeed, mental, and ruled that he should not be charging VAT on food consumed while sitting down on an eat-in basis, nor indeed on cooked food for immediate consumption. Which would therefore include places like McDonalds (other burger repositories are available)

Now, here in the UK, despite the fact that EU decisions are binding on member states, HM Revenue and Customs have decided that "that the ECJ judgment has no implications for the UK treatment of supplies of hot food and businesses should continue to treat their supplies in accordance with published guidance." However, food retailers (and their accountants) may beg to differ.

The UK tax authority's position is that they didn't accidentally exclude cooked food supplies from zero rated 'food', but that it was quite deliberate. And as a result, they are sticking to their guns and conveniently ignoring the fact that the judgment saw no difference between takeaway and eat in food, which would also include cold food. Understandable really when you consider the size of claims that could be made by someone like Starbucks or Costa, going back up to four years.

Retailers are said to be considering their options, although trade groups and accountants are already advising making claims. Either way, this issue is unlikely to be resolved soon and you will have to pay more for sitting down or eating hot food for a while yet.

But even if the claims do prove to be successful, there is a wider issue. Strictly speaking, any VAT unneccesarily charged by the retailer is not actually paid by the retailer. It is paid by you and me, the poor old consumers who munched hot or cold food, possibly while resting our bottoms. So assuming the claims stand (pun intended), are McDonalds going to give us all back our money? What do you think...

*don't get me started on the "Is a Jaffa cake a chocolate biscuit" VAT argument.


  • andy y.
    Could end up the best of all world's for MC'ds.They win a case for a retrospective refund going back years which is a nice windfall.Us mugs that paid the VAT are out of pocket. And of course the billions refunded will have to replaced by higher taxes elsewhere BTW why the London skyline in the garphics
  • Sawyer
    It'd be difficult for these companies to justify claiming VAT back when, as you say, it's a tax on the consumer. In fact, the only way they might try to justify it (morally, not legally) would be to claim that they were previously absorbing the cost of VAT anyway, in which case they might continue to keep their current prices even after becoming VAT-exempt. McDonalds can't lose. Perhaps the best way out for the Government would be to introduce an unhealthy food tax mentioned here in the Bitterwallet comments a few weeks back, recouping lost VAT from the burger chains and ending the Jaffa Cake VAT argument in the process.
  • Troll
    Bacon Tax? Noooooooooo, oh wait, there's a comma......phew

What do you think?

Connect with Facebook, Twitter, or just enter your email to sign in and comment.

Your comment