The Government has announced that it is to reverse plans to impose VAT at 20% on food sold above ambient temparature and the definition of “hot food” has been altered to allow the change.
The Chancellor had in his March Budget speech controversially proposed that any food served above ambient temperature would be taxed at 20 %. The idea was to address an “anomaly” in the system. However this lead to a major outcry that the use of an ‘above ambient temperature’ test would lead to distortion between summer and winter temperatures and thus affect the VAT rate.
The new VAT rules remain complicated though. We understand that the Chancellor has written to the Chairman of the Treasury Select Committee that pasties and other bakery items will only have VAT charged on them if they are intended to be served hot and they will no longer attract VAT if they are “cooling down” after being removed from the oven. This will clearly place obligations upon the supplier to support the cooling down process.
This is clearly a victory for common sense. The proposals were ill conceived as they were unmanageable for the business community and the customer had no idea of when they would pay the additional tax. We await the revised rules to see if they appear workable so watch this space for further thoughts.
Furthermore the proposal to apply 20% VAT on holiday static caravans form 1 October 2012 will also be altered. They will now attract VAT at a reduced rate of 5% from next April. Static caravans do not currently attract any VAT whether for residential or holiday use.
Any government proposing a hike of 20% in tax on a commodity must expect a backlash as businesses do not have time to properly decide how to deal with the increase so, while any tax rise is tough, a 5% increase at least gives businesses some scope for either absorbing some or all of the increase or raising prices.
For further details, advice or comment on this issue, please contact John Crawford on 01962 735350