Subway loses legal challenge over VAT on hot food
Mr Justice Arnold has thrown out an appeal bid by a franchisee of sandwich chain Subway to challenge HM Revenue & Customs’ VAT policy on hot food.
subway
The case was brought in the Upper Tier Tribunal by One Crown Office Row’s Philippa Whipple QC who led Isabel McArdle on behalf of franchisee Sub One.
In throwing out the case Arnold J handed victory to Monckton Chambers’ Melanie Hall QC, who was instructed for HMRC.
According to the judgment, 1,200 Subway outlets were waiting to bring appeals against HMRC should the challenge succeed.
At the heart of the dispute was whether Subway’s takeaway sandwiches that were heated before being taken away were above ambient temperature when later consumed and therefore liable for VAT.
“It’s perfectly clear that the toasted subs were heated for the purpose of enabling them to be consumed at above ambient temperature, and not for some other purpose,” the judge ruled, continuing: “Subs were in fact consumed at above ambient temperature. That would inevitably depend on how quickly they were eaten, which in turn would depend on how far the consumer carried them before eating them.
“Nevertheless, it seems clear that the majority of customers wanted the toasted subs warm, and thus appetising. They did not want cold pre-toasted subs, which would be much less appetising.”
The appellants, who were represented by Dass Solicitors partner Dipak Jotangia, also contended that inconsistent decision making by HMRC on which hot foods should be taxed and which should not had placed it at a competitive disadvantage because rivals were not under the same tax obligations.
However, Hall said that to make such an argument fell outside the scope of the appeal.
Arnold J stated: “I’m not persuaded that HMRC’s failure to appeal the adverse decisions in question [John Pimblett and Sons Ltd v Customs and Excise Commissioners [1988]] combined with its support for the tribunal’s decision in the present case has placed the United Kingdom in breach of the principles of fiscal neutrality or effectiveness.”
Legal line-up:
For the appellants Sub One trading as Subway: One Crown Office Row’s Philippa Whipple QC, instructed by Dass Solicitors partner Dipak Jotangia.
For the respondents HMRC: Monckton Chambers’ Melanie Hall QC, instructed directly.
Readers' comments (9)
anon | 11-Oct-2012 11:23 am
those who can't afford the extra 60p will have to go cold turkey
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Anonymous | 11-Oct-2012 11:42 am
I imagine Subway will be pretty cheesed off with this decision.
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Nihaal Patara | 11-Oct-2012 12:22 pm
I would have thought that it is the temperature at the point of sale that determines the VAT liability not the temperature when the product is eaten. It is common sense . Otherwise how could you possibly document how quickly the products are eaten
Andersons CA.
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Anonymous | 11-Oct-2012 3:34 pm
Subway have made a right meal of this case.
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The Earl of Sandwich | 11-Oct-2012 4:26 pm
This verdict is a disgrace. There is no WAY that crap should be considered food.
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Anonymous | 11-Oct-2012 5:12 pm
Yet again the inconsistency of HMRC.
If this decision is based on the customer's view of wanting a toasted sub then surely GREGGS should be paying VAT on their pasties. It is sheer lunacy to suggest that customers want a cold pasty. How do they get away with it??
This makes Subway completely noncompetitive.
To the outsider this makes HMRC look completely bias.
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Anonymous | 12-Oct-2012 11:33 am
@ Anonymous
Is it really inconsistent? I had thought the VAT ruling on pasties was that if food is 'kept warm' then it is liable to VAT. I think the pastie argument was that pasties were baked on a regular basis but were NOT kept warm. Therefore a customer may get a hot, warm or cold item depending on how long the food has been on display.
Subway seem to be physically heating the product directly for each individual and so VAT becomes liable.
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Anonymous | 17-Oct-2012 9:29 pm
Dear All
I am Subway franchisee with more than 3 stores, been given a 200K VAT bill for toasted sandwich, backdated for three years. I cannot pay that amount and it has affected my health and my life as a young businessman. Due to no fault of mine as a franchisee I get hit with the bill, and all other Subways. I am currently thinking of going into administration or alternatives.
I feel so angry that Subway is not held liable for this as they should have thought about this before bringing the toaster ovens, I wish I had a solicitor who would take this case on and sue subway for the VAT bill and the pain caused to others and me. I am sure if a good firm of solicitor offered to represent each franchisee for £1000 each and 10% of the winnings, that majority of franchisees like myself would LOVE to take subway to court. The franchise model is not what I bought into; there was no element of VAT on toasted sandwich.
As a young businessman I have:
=> Lost £500,000 worth of investment
=> My credit score to poor
=> Going to lose a family members house, which are the guarantor of the loan.
YET NOBODY GETS TO KNOW ABOUT THIS. NO MEDIA, NO LAW SUIT AGAINST SUBWAY....
I Which someone could help...?
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RG1 | 18-Oct-2012 3:45 pm
@ Anonymous 11-Oct-2012 5:12pm. Of course punters buy and eat cold pasties. Look in the chiller cabinet of every convenience store and garage across the land and see what Ginsters have there. All designed to be eaten cold or warmed up.
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