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British supermarket chain Morrisons faces a £17 million bill after losing a long-running court battle to prevent value-added tax being imposed on its rotisserie chickens.
The UK High Court determined that chickens should be subject to the standard VAT rate of 20 percent for hot food.
The case stems from changes brought in with George Osborne’s infamous “pasty tax” of 2012, when the Treasury sought to impose VAT on all hot takeaway food such as pies, sausage rolls and pasties.
In response to public outcry, it backed down from its initial proposal that food sold above “ambient temperature” should be taxable. Critics said that weather can determine whether a product is subject to VAT or not.
The Treasury later decided that VAT would be applied to products stored in heated cabinets, while products placed on racks to sell cold or “incidentally hot” would be exempt.
Morrisons has argued that its rotisserie chickens should be exempt because most of its customers eat the product cold or reheated during the day as part of an evening meal.
The December 11 ruling, made public on Monday, said Morrisons sold the chickens for hot meals in plastic-lined packaging and with the label “Caution: Hot Products”. Morrison declined to comment on the decision.
The judge concluded that HMRC had never set out specific rules on VAT and rotisserie chickens.
He also said that Morrisons had not disclosed material information, such as the fact that it withdrew its rotisserie chickens from sale after two hours, when they were still above ambient temperature.
Expert witnesses in the case argued that a cooled rotisserie chicken in a bag would be between 42 and 45℃ after two hours. In contrast, without the bag, the chicken will be around 31.8℃.
The judge ruled that Morrison’s chickens would be more than “hot by accident” if sold.
Industry and tax experts say the 13-year-old case reflects the problems of complexity in Britain’s tax system, where courts are forced to rule on the production and consumption of food to determine whether VAT should be added to the price.
Following previous rulings on Jaffa cakes and giant marshmallows, last year a UK judge ruled that there were certain types of flapjack cakes.
