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Getting to grips with Pasty Tax

Getting to grips with Pasty Tax

On 1 October the controversial ‘Pasty Tax’ came into force. Many remain unsure which items now attract VAT under the new law.

Greg Mayne, director of Indirect Tax Services at accountancy firm Reeves explains: “There are five tests for traders to apply to know whether they are liable for the tax, which applies to anyone selling hot food for eating off their premises.”

Has the food been:

  • Heated in order to be eaten hot?
  • Heated to order?
  • Kept hot after being heated?
  • Provided in a packaging that retains heat?
  • Marketed to indicate that it is supplied hot?

“There are no ways around VAT if the answer is ‘yes’ to any of these questions. A key issue is whether the product, or part of it, is hot – which is defined as above surrounding air temperature – at the time it is given to the customer.

“But there is no VAT on products, such as bread, that may be sold warm simply because they have just been baked. This is because Government limited the planned scope of the VAT extension following widespread opposition from the baking industry. Food such as sausage rolls or pasties sold on shelves, but not being kept hot in a special cabinet, will remain not liable for VAT.”

Shirley Smith, corporate partner at Reeves and head of Hospitality and Leisure Services, comments: “Her Majesty’s Revenue and Customs (HMRC) recently announced new task forces to tackle what they call tax cheats. They expect to recover more than £19.5 million by targeting, amongst others, those who do not pay the right amount of tax in restaurants in the South East and Solent areas.

“Therefore it is important to understand the impact of the ‘pasty tax’ on your business to ensure you correctly account for this VAT. The HMRC task force teams will visit traders to examine their records and carry out other investigations, which have been known to include ‘test eating’ by visiting restaurants posing as customers.”

The message to traders, whether they are selling pasties from a shop or hot chestnuts from a stall, is clearly ‘don’t bury your head in the sand’ and ignore the VAT – this is not going to go away.

For more free tax advice visit

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