Over the years, the topic of Greggs “avoiding” VAT has come up time and time again. Recently the unfairness of Greggs came up in the industry forums on Facebook.
I do understand how it looks unfair, but I don’t want to look at them having a competitive sales advantage to fish & chips, because a; they are a different product category and b; they are a different value proposition.
I recently said that the issue with Greggs not collecting VAT is the legal framework around VAT and not a loophole they are exploiting and that the framework is pretty much black and white regarding the sale of fish & chips.
1: The food has been heated to enable it to be consumed hot.
2: It has been heated to order.
3: It has been kept hot after being cooked.
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.
5: It is advertised or marketed in a way that indicates that it is supplied hot.
Fish & Chips falls into all of the above examples.
In 2011 KPMG / NFFF set up a campaign to try get VAT removed and back payments refunded to shops. However, there were a couple of issues. As above the HMRC is a little clearer (more on that below) on who should collect and pay VAT. Fish & Chips is essentially the perfect case for VAT, it hits all the five points above, and if the industry did get repayment of VAT, it would not be able to pass on the funds to the taxpayer who purchased in their shops. I may have it wrong, but I think that would have to be the case in this instance.
The basis of the case was that a hot dog seller Manfred Bog in Hannover, Germany had won a lawsuit not to pay VAT because he successfully argued that all he was doing was assembling bread and sausage and no skill was involved.
The way I understand this is that in Germany (at the time) they apply VAT to food differently to the UK. He essentially won the case because they saw his lack of skill and expertise as a reason why he shouldn’t collect VAT.
For the most part, what was unfair in the UK was that supermarkets (and probably many others) were selling hot chicken and pizza at zero vat. George Osborne went about correcting this in the 2012 Budget but tightened things up for hot food. The likes of Greggs and bakeries went on the march to protest as they saw themselves as selling food at ambient and if you did get a hot pie or pasty that was purely by a stroke of luck as they were intended to be eaten ambient. They had massive support from the red-top newspapers which rallied for them too.
It is fair to say that Greggs is following the letter of the law, here are two examples from the facts page on their website.
I have a couple of thoughts on VAT on hot food, ill break them down.
20% is just far too high; it penalises customers for eating hot food from a takeaway. In today’s world, everyone is time-poor. I am not convinced that hot food from a takeaway is even a luxury.
The category of ‘out of home food’ is, in my view, a group that should be vat rated. Think about a sandwich that you could make at home for 50p, but you choose to buy it ready from the supermarket or a subway. For me, this makes sense as there is ‘added value’ in this transaction. On top of this, I would throw in all sandwich shops, subways, Greggs, bakeries, cake shops e.t.c.
I find it highly unlikely that VAT will be zero for hot food takeaway, I genuinely believe that our goal should be to have VAT added to all out of home food and then I think VAT under 10% should please many.
It is worth noting that VAT is not a tax on you the business owner; it is a consumer tax. The biggest failure is your customers not knowing about it. Were possible your customers should know about VAT.
I look forward to hearing your thoughts.