One particular issue to emerge from the Budget that will hit some major Cornish businesses is the cost of our pasties. Bishop Fleming Cornwall’s director of Tax, Robert Bailey explains
A lot of the budget had been announced previously, was the result of consultations reporting or had been leaked, but there were some genuine surprises in the speech and in the detail, some good, some not so, and we have a particular local problem with one announcement.
The Chancellor has applied VAT at standard rate to all food served hot (except for freshly baked bread). Anything served above ambient temperature is subject to the full force of VAT.
At the moment, standard rate VAT applies where food is “… heated for the purpose of enabling it to be consumed at a temperature above the ambient air temperature.”
“Some of Cornwall’s biggest employers are the larger pasty makers and this could be a serious blow to those businesses”
Many pasty makers sell pasties from their bakery shops, straight out of the oven – the pasties are held in baker’s trays behind the counter and sold as fast as they can be made, but they are not necessarily hot. A customer will often happily take some cold pasties to heat up at home and if they specifically want a hot pasty to eat now, they make take a pasty from a warming cabinet on the end of the counter. The purpose of heating is to cook the food – the temperature they are sold at is merely a result of how fresh the pasty is out of the oven – so they are zero rated.
The pasty in the warming cabinet is heated for the purpose of serving it hot so is a supply in the course of catering and is standard rated, as would a pasty from the tray put into a microwave at the purchasers request.
But, from 1 October 2012, any pasty sold above “ambient air temperature” will be subject to VAT at the full rate – the draft rules specifically refer to the need to allow a pasty to cool to ambient air temperature before sale to remain zero rated.
So we may have a baker’s tray of 30 pasties at the back of the shop cooling, having come out of the oven 5 minutes ago. All the pasties on the counter have been sold. The normal price is £2 and the customer has a choice: either wait for 40 minutes for the pasty to have cooled sufficiently and pay £2; or have one now and pay £2.40. And if the harassed serving staff are harried into selling one early, and a VAT inspector is watching, the baker may be in front of a Tax Tribunal!
So, unless a baker refuses to sell a warm pasty until it has cooled (or keeps his shop at Equatorial temperatures) the standard rate will apply to all retail sales of fresh pasties, effectively creaming off 1/6th of the profits or adding 20% to the price to the customer.
Some of Cornwall’s biggest employers are the larger pasty makers and this could be a serious blow to those businesses – and to the Cornish Pasty eater who will certainly be paying more for his pasties.