A recent and unusual legal precedent has been set which relates to VAT in the food sector, though it may not be something you've considered before when tucking into your takeaway sandwich...

Given the current global pandemic and everything that entails you may rightly ask yourself ‘who cares about whether a Subway sandwich should attract VAT or not?’.  However, the VAT treatment of certain food stuffs has often been a talking point amongst retailers, VAT professionals and lawyers. In 1991, a VAT tribunal ‘famously’ turned its attention to the question on everyone’s lips – ‘is a jaffa cake a cake or a biscuit?’. The sweet snacks apparently hover on ‘the borderline between cakes and biscuits’ in the complex world of VAT as we’ve considered before in our blogs.

After noting, among other things, that the name was ‘a minor consideration’, the tribunal eventually accepted United Biscuits arguments’ and ruled that jaffa cakes had ‘enough characteristics of cakes to be accepted as such’, and they were therefore zero-rated.

So, we now turn to the recent case involving Subway and the VAT question surrounding the bread used in their sandwiches. An Irish Supreme Court judge has found that the sugar content of the US chain’s sandwiches exceeds a stipulated limit, and they should in fact be classified as confectionery rather than bread.

‘So what?’ You may cry, other than a concern about the amount of sugar it adds to your diet, you may not initially really care.

Well, in a judgement published recently the court ruled that the bread served at Subway, could not in fact be defined as bread because of its high sugar content. The ruling followed an appeal by Bookfinders Ltd, Subway’s Irish franchisee. The company had argued that the bread used in Subway sandwiches counted as a ‘staple food’ and did not attract VAT.

Ireland’s Value-Added Tax Act distinguishes between staple foods – bread, tea, coffee, cocoa, milk and ‘preparations or extracts of meat or eggs’ – and ‘more discretionary indulgences’ such as ice-cream, chocolate, pastries, crisps, popcorn and roasted nuts.

The key fact was the act’s strict provision that the amount of sugar in bread ‘shall not exceed 2% of the weight of flour included in the dough’.

Subway’s bread, contains five times as much sugar. Or, as the supreme court put it: ‘In this case, there is no dispute that the bread supplied by Subway in its heated sandwiches has a sugar content of 10% of the weight of the flour included in the dough.’

Bookfinder Ltd claimed that there were owed a refund from early 2004 to November/December 2005, when they accounted for VAT. They argued that the products should have been charged at 0% VAT but Mr Justice O’Donnell was not persuaded and the appeal was dismissed.

In a press statement a spokesperson for Subway said: ‘Subway’s bread is, of course, bread.’ It seems however the law doesn’t agree and it may have been more appropriate to use the quote attributed to Marie-Antoinette ‘let them eat cake’.

VAT regulations are notoriously complicated so make sure you take the advice of an expert for your business. VAT is a particular specialism of the Bedrock team who would be happy to hear from you to discuss how they may be able to help your business thrive and stay on the right side of VAT regulations.

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