Sub One Limited (t/a Subway) v The Commissioners for Her Majesty’s Revenue and Customs  UKFTT 487 (TC)
This decision has clarified the UK law surrounding the application of Value Added Tax (“VAT”) on hot food served over the counter and serves as a useful reminder for retailers on what food products VAT should be charged on.
Under UK legislation, food “of a kind used for human consumption” is zero-rated unless that food is a supply in the course of catering. ‘Catering’ is defined as the supply of food for consumption on the premises, or the supply of “hot food for consumption off the premises”.
‘Hot food’ is defined in the legislation as food, or any part of food, which has been heated “for the purposes of enabling it to be consumed at a temperature above the ambient air temperature” and which is “above that temperature at the time it is provided to the customer”.
Subway argued their ‘Meatball Marinara Sub’ sandwich and their toasted sandwiches, despite being hot food, were not subject to VAT as the purpose of heating the sandwiches was not to sell hot food, but instead to change the nature of the food that they were selling.
According to Subway, the purpose for heating the Meatball Marinara Sub was to serve high quality sandwiches, as well as to make the marinara sauce edible; before heating, and upon cooling, the sauce was described as “thick, glutinous and unpalatable”. Furthermore, Subway argued that the meatball filling was stored at a high temperature in order to comply with health and safety legislation.
Subway stated that the reasoning behind toasting sandwiches was to change the chemical nature of the toasted food – and thus its flavour – and not to make the food hot.
Subway was unsuccessful on both arguments as, whilst their purpose may have been to change the nature of the food provided, or to comply with various regulations, the tribunal held that the dominant purpose was to provide the customer with food above the ambient air temperature.
The tribunal ruled on what it considered the mindset of the Subway employee to be when serving toasted sandwiches or Meatball Marinara Subs. This was held to be serving hot food to the customers, and therefore both products were subject to VAT.
In the case of the Meatball Marinara Sub, however, this raises an important question: can a differentiation be drawn between heating for the purposes of being hot, and heating for the purposes of being palatable? Whilst the tribunal did not consider this question directly, a literal interpretation of the law and the decision being made (at least partially) on the grounds that the quality of the product desired to be sold could only be achieved with heating, would indicate that the motivation, and the desired outcome, are irrelevant provided that there is a dominant intention to serve the food hot.
1. The definition of ‘hot food’ requires that it must be heated for the purpose of being provided hot to the customer and be hot at the time it is provided to the customer;
2. ‘Hot’ simply means ‘above the ambient air temperature’ – there is no subjective element as to whether the food served is hot or merely warm;
3. It is irrelevant if only part of the food is above the ambient air temperature – there is no requirement that the entirety of any food served must be hot in order to make it a taxable supply;
4. It is irrelevant whether or not the food will actually be consumed hot – once a supply is made that is purposefully hot and served whilst still hot, the supply is taxable, regardless of when the customer consumes it;
5. The dominant purpose of the vendor in heating the food is key – if the vendor heats the food with the intention of serving it hot, then the food will likely be a taxable supply.