Budget 2012: VAT Loopholes to Close

Hot food and sports drinks are targeted, as anomalies in the VAT system are set to be brought in line.

The chancellor announced that loopholes, which allow hot foods sold in supermarkets to avoid VAT, while similar products from take-aways being charged, will end. Another quirky anomaly allows sports drinks to be exempt from VAT while regular soft drinks are not.

The Treasury expects to raise £50m in 2012/3 rising to £120m in 2016/7, which ‘some may see as highly ambitious’ Stephen Coleclough, PwC tax partner considered.

Referring to the ‘hot food reform’ Coleclough said: ‘Sandwiches which are not hot, but warmer than the “ambient air temperature” will now attract VAT. But the issue is by no means cut and dried. Bizarrely, products with freshly baked bread aren’t caught in the net. Batten down the hatches for the first court case on the legal definition of “freshly-baked”.’

He added: ‘The government is trying to remove anomalies but has only introduced new ones which will no doubt lead to yet more litigation which is the one thing the government is trying to avoid.’