Tax Chat - Pasty Tax – Round 2

In my recent newsletter article I lamented the Chancellor’s attempt to increase the tax base under the guise of “addressing borderline VAT anomalies”.  The news-watchers amongst you will already be aware that one of the proposed changes – the now notorious “pasty tax” – has been withdrawn.

This has given rise to a flurry of headlines of the “victory for common sense” variety. Whilst the decision to maintain VAT relief for freshly-baked products is clearly welcome news, I think it is a bit far-fetched to use the words ‘common sense’ in the context of the VAT legislation regarding food and drink.

Think about it for a moment. The basic VAT rules on food, drink and catering were originally drafted for the introduction of VAT in 1973. If I think back to what my mum would have put in her weekly shopping basket in the early 70s compared to the products I now buy from the supermarket, there is a world of difference. Cereal bars and smoothies were virtually unheard of, ready meals and other prepared foods were in their infancy, and the ‘food court’ concept was still a long way off. What we eat and the way we consume it has changed significantly over the last 40 years.

Yet here we are, trying to shoehorn the products we buy today into a set of rules from a generation ago. How can this result in anything other than an ever-growing list of ‘anomalies’?

In my view, rather than tinkering around the edges, the Chancellor should have taken the opportunity to address some of the fundamental problems which have arisen as the result of the current rules. There are so many good reasons – practical, economic and social – for doing so.

I suspect, however, that it will be a brave man (or woman) who finally bites the bullet (or should that be biscuit?) on this one!

In contrast to the great pasty u-turn, it’s a great shame that Mr Osborne hasn’t yet been convinced on the matter of zero-rating for alteration work to protected buildings. It is generally estimated that the proposed removal of this relief will cost the charity sector around £50 million a year in additional VAT – something to give us all further food for thought while munching our VAT-free pasties.