UK Budget 2012: Bakeries to pay 20% VAT on hot takeaway food

From October, bakeries and supermarkets in the UK will have to pay a 20% VAT on all hot takeaway food, under the new changes outlined in Chancellor George Osborne’s Budget 2012.

George Osborne said that these steps are being taken to address the loopholes and anomalies in the tax system.

Under the amendment, 20% VAT will be added to all hot food served above the ambient air temperature, including rotisserie chicken, sausage rolls, pies, pasties, toasted sandwiches and other products, with the exemption of freshly baked bread.

The VAT will however not be applicable to selection of cold sausage rolls, pasties or cooked chicken, which are below the surrounding air temperature.

This move is a part of an effort by the government to raise £125m this year and £350m a year by 2016.

This change, called ‘hot chicken tax’, is expected to affect small bakeries and retailers who will seek to pass the extra cost to consumers through higher prices, although retailers refused to forecast the future price increases.

Newcastle-based baker Greggs, which has 1,400 stores across the UK and sells 2.5 million sausage rolls a week, said that it was concerned about the announcement, while sandwich chain Subway said it was taking advice on the matter.

A Greggs spokesman said the company does not believe that its freshly baked savoury products should be subject to VAT and that the company will be making strong representations to the government regarding the proposed changes.

In addition, body building drinks, which are VAT free due to their nutritional value, will now be listed under fizzy drinks and become VAT payable, however, meal replacement drinks for dieters will be exempted.

Currently, only hot foods consumed in store are subject to VAT. A consultation on the changes closes in May 2012.

Image: VAT will be added to all hot food served above the ambient air temperature. Photo: Scjessey