Hot and cold take-away food: is the supply one of hot take-away food and drink for VAT purposes?
This section deals in detail with one of the two main issues covered by Note (3) to Group 1 namely ‘hot food’. Guidance on premises is covered in detail in section VFOOD4500.
Note (3)(b) to Group 1 extended the meaning of catering to include supplies of ‘hot food’ which is for consumption off the premises on which it is supplied. Food or drink that meets the legal criteria for ‘hot food’ is therefore standard-rated, but, as explained below, prior to 1 October 2012 this did not apply to all food that happened to be hot at the time it was supplied.
Typical examples of food and drink that are standard-rated if sold hot are:
- fish and chips, chicken and chips, pie and chips;
- chips sold on their own;
- Chinese, Indian and similar take-away meals and dishes;
- baked potatoes with a hot or cold filling;
- hot pizzas;
- toasted sandwiches (see VFOOD4320);
- cups of tea, coffee, chocolate and so on;
- cups of soup; and
- roasted chestnuts.
Prior to 1 October 2012
There were only two essential points to consider to determine whether the supply was one of ‘hot food’ for VAT purposes:
- Temperature: was the food ‘hot’ within the meaning of the Act? (see paragraph VFOOD4240)
- Purpose: had the food been heated for the purpose of enabling it to be consumed hot? (see paragraph VFOOD4260)
Some businesses argued that their supplies of hot take-away food should be zero-rated in accordance with the ECJ’s ‘Bog’ decision. HMRC does not accept that the decision has any implications for UK taxpayers - see VFOOD4120.
Changes effective from 1 October 2012
With effect from 1 October 2012 the VAT Act was amended to include some more objective
tests to ensure that hot takeaway food is taxed consistently. Under the new rules the sale of hot food is standard rated if:
- The food (or any part of it) is hot at the time that it is provided to the customer (‘‘the precondition’’) and
- One or more of the following 5 tests are met.
Test 1: It has been heated for the purposes of enabling it to be consumed hot
Test 2: It has been heated to order.
Test 3: It has been kept hot after being heated.
Test 4: It is provided to a customer in packaging that retains heat (whether or not the packaging was primarily designed for that purpose) or in any other packaging that is specifically designed for hot food.
Test 5: It is advertised or marketed in a way that indicates that it is supplied hot.
The precondition ensures that, in keeping with the pre 1 October 2012 rules, only food that is hot at the time that it is provided to the customer is standard rated.
What is meant by hot?
Something is hot if it is at a temperature above the ‘‘ambient air temperature’’. This definition forms part of the pre 1 October 2012 rules which suppliers of hot food should be familiar with. Generally speaking, businesses do not need to specifically check whether the precondition is satisfied as it is clear whether or not the food is hot at the time they provide it to the customer. In some cases it may be necessary to check, but this was also the case with the pre 1 October 2012 rules.
Why refer to ‘any part of a food product’ being hot?
In some cases only part of a product will be hot and the new Notes to the VAT Act introduced with effect from 1 October 2012 ensure that such products are standard-rated provided any one of the 5 above tests are met.
Example: A business sells bacon rolls. The bacon is hot but the roll is cold. As part of the product is hot (the bacon), the new legislation ensures that the whole product (the bacon roll) is standard-rated.
What is meant by ‘at the time it is provided to the customer’?
This wording was also in the previous legislation and is the time that the product is handed over to the customer.
- A customer picks up a hot chicken from a deli counter in a supermarket, which has cooled down to ambient air temperature by the time he or she comes to pay for it at the checkout. In this case, the time at which the chicken is provided to the customer is at the time that it is handed over to the customer at the deli counter (i.e. when it is hot), not the time when the customer pays for the chicken at the checkout.
- A customer orders and makes payment for a pizza over the telephone before it has been cooked. He or she collects the pizza 20 minutes later when it has been cooked and is hot. In this case, the time at which the pizza is provided to the customer is the time that the pizza is handed to the customer on collection (ie when it is hot), not the time when the customer orders the pizza over the telephone.
How do the 5 tests work?
Test 1. The food has been heated for the purpose of enabling it to be consumed hot.
This was one of the old requirements under note (3)(b)(i) and has been included as one of the tests under the new legislation to ensure that all hot takeaway food that was previously standard rated continues to be so. Case law has established that, taking account of all relevant facts and circumstances, it is the intention or purpose of the supplier (and not the customer) in heating the food that is the determining factor. This means that the sale of products that have been cooked specifically for consumption whilst still hot (as a result of being freshly prepared, baked, cooked, reheated or kept warm) are standard-rated. This is in contrast to products that are not intended to be eaten while hot and are sold warm simply because they happen to be freshly baked and are in the process of cooling down, which are not affected by this test.
Examples of hot food under this test;
- Chips, fish and chips, and similar items
- Chinese, Indian takeaway meals, pizzas, kebabs etc
- Baked potatoes with hot or cold fillings
- Hot dogs and hamburgers
- Pies, rolls, sausage rolls, pastries and similar items
- Tea, coffee, chocolate and other hot drinks
- Hot soup
The remaining tests are designed to address any inconsistencies that have arisen as a result of case law by minimising the need to consider the supplier’s purpose in heating the food.
Test 2. The food has been heated to order.
This test confirms that the sale of food that has been heated to the customer’s order is standard rated.
Examples of hot food that may be heated to order and are therefore standard-rated include;
- Toasted bread, sandwiches, paninis, teacakes and similar items
- Garlic bread
Test 3. The food has been kept hot after heating.
This test confirms that food that is kept hot after being cooked, heated or reheated is standard- rated. This includes instances where a supplier of hot takeaway food stores the food in an environment which provides, applies or retains heat, or takes other step to ensure that it remains hot or to slow down the natural cooling process after it has been heated. In practice, this will mainly affect products that are kept warm in heated cabinets (for example under heat lamps), on spits, in hot water or on hot shelves or trays. It will also include any products kept warm in cooling down ovens or other appliances that slow down rate of cooling.
Examples of hot food under this test include:
- Freshly baked croissants, pretzels, and similar items that are kept hot in a heated cabinet
- Hot dogs kept hot in water or on a tray
- Hamburgers kept hot on a shelf
- Doner kebabs kept hot on a spit
- Cooked chickens kept in a heated cabinet or on a hot tray
- Meat pies kept in cabinets during a controlled cooling process
Test 4. The food is provided to a customer in packaging that retains heat (whether or not the packaging was primarily designed for that purpose) or in any packaging that is specifically designed for hot food.
In practice, this will mainly affect products that are sold in specialised packaging such as foil lined bags and insulated containers including specially designed cardboard boxes. It will not affect products that are sold in ordinary paper bags or similar packaging.
- Examples of hot food under this test include:Naan bread and garlic bread sold in a foil lined bag
- Chinese and Indian takeaway meals sold in foil lined containers
- Pizza sold in specially designed cardboard boxes
- Cooked chickens that are sold in heat retentive packaging or packaging designed to prevent leakage of fluids or grease
Test 5. The food is advertised or marketed in a way that indicates that it is supplied hot.
This test confirms that takeaway food that is advertised or marketed in a way that indicates that it is supplied hot is standard-rated. This will be established by examining the nature of the advertising or marketing campaign and whether this indicates that the takeaway food in question is hot. This could include pictures of the products showing steam rising from them. ‘Advertised or marketed in a way that indicates that it is supplied hot’ does not include advertised or marketed as ‘freshly baked’.
- Examples of hot food under this test include:Rotisserie chickens
- Roasted chestnuts
Which in each case, are advertised or marketed as ‘hot’.
What types of food are not caught by these tests and remain zero-rated?
These 5 tests ensure that the vast majority of hot takeaway food is standard-rated. The exception is food that is either not hot at the time it is provided to the customer or which is hot at the time it is provided to the customer but does not satisfy any of the above tests. For example, freshly baked bread or bakery products that are incidentally hot at the time that they are sold but which are frequently eaten cold (i.e. when they have cooled down to ambient air temperature).
Businesses selling food that is hot at the time it is provided to the customer will need to work through each test to confirm that none apply before zero-rating their products. This is illustrated in the examples in VFOOD4240.