.png)
.png)
The government’s decision to modify its plans to impose VAT on takeaway food and static holiday caravans is a victory for campaigners on social media but may signal a rise in the sales tax later this year, according to senior professionals.
The Treasury this week announced proposals to ‘address anomalies that have built up in the VAT system and have led to similar products being taxed differently’.
Following consultation, the controversial approach to the treatment of hot food sold to be eaten off-site – the so-called pasty tax announced in the March Budget – will be altered to consistently apply to items that are kept hot or marketed as hot, but not to those left to cool naturally.
The original approach would have created a ‘number of burdens for the businesses involved,’ wrote the Exchequer secretary to the Treasury, David Gauke, in a letter to Andrew Tyrie, chairman of the Treasury Select Committee.
The change of heart on VAT is a victory for the people, claimed John Endacott, tax partner at Francis Clark, who said social media in particular had played a large role in raising public awareness, mostly by way of a thriving Twitter campaign.
Mr Endacott added that the Treasury’s announcement was ‘a major concession. The government now seems to be proposing exactly what we have been campaigning for: acceptance of the unique position of freshly baked goods but supplemented by new, more objective tests to prevent abuse.
‘This new approach will still mean changes for most bakeries, and it will be important to consider carefully the implications – but changes should be fairly minor, meaning jobs and businesses should be safe,’ he said.
The other VAT amendment to be declared this week will mean a rate of 5%, rather than the full rate of the tax, being permanently applied to static holiday caravans to ‘reflect their position between permanent residences that are not liable for VAT and other caravans that are liable for the standard rate,’ wrote David Gauke.
He said the previous zero rate had been ‘only ever intended to apply to the sale of residential caravans’.
The new charge will come into effect from 6 April 2013, not 1 October 2012 as stated in the Budget, ‘to give the industry more time to adjust’. Revised draft legislation is promised after Parliament returns from its Whitsun recess.
Baker Tilly Tax partner George Bull hailed ‘common sense prevailing on the headline-grabbing pasty and caravan taxes’, but warned that the revamped measures could mean consumers will be hit by a rise VAT in the chancellor’s autumn statement.
‘With income tax and National Insurance, VAT is one of the “big three” revenue-raisers for the Exchequer. With no upper limit on the standard rate of VAT, the autumn “Budget” may announce an increase to the current 20%, as recommended by the IMF,’ he said.
VAT expert Graham Elliott, tax partner at haysmacintyre, also cast doubt on the Treasury’s changes. While the modified pasty-tax signals ‘a dramatic improvement over what would have been unworkable legislation that would have caused endless disputes and damaged industry’, part of the original proposal has been preserved, he noted.
Products that are baked, kept and sold hot will be subject to 20% VAT; food that is cooked and then allowed to cool naturally will continue to be zero rated – and HMRC may need to make a ruling with regard to shelving to ensure it is as open as possible to allow the food to cool, suggested Mr Elliott. Items kept under hot lights, for example, are unlikely to be regarded as being allowed to cool naturally.
With regard to static holiday caravans, Mr Elliott said the new charge will not ‘clarify an anomalous position’, and he wondered whether the government would have to obtain the go-ahead from the EU to introduce a 5% rate.
If this was the case and the EU did not give approval, the coalition would have to apply full VAT given that it is not legitimate to return to zero once it has been removed.
