VAT: Response by HMRC to borderline anomalies consultation

Summary of HMRC responses to consultation

A summary of responses from HMRC to the VAT: addressing borderline anomalies consultation was released on 28th June.

All the changes take place from 1 October 2012 with the exception of the reduced 5% VAT rate on static caravans which will be introduced from 6 April 2013 and a summary of each is set out below.

Catering – hot takeaway food and premises

Revised tests are to be introduced from 1 October 2012 relating to the supply of hot food.

Freshly baked sausage rolls, pasties and other products that are left to cool naturally will continue to be zero rated.

The existing test for standard rated hot food is retained and in addition new objective tests will be introduced.

VAT will be applied at the standard rate to hot food which is:

  • provided hot for the purposes of allowing it to be eaten hot (the existing criterion); or
  • cooked, heated or reheated to order – for example toasted sandwiches; or
  • kept hot, or where the natural cooling process is delayed – this would include instances where businesses kept food hot in hot cabinets, hot plates, heat lamps, etc. or where heat is applied in order to slow the cooling process (Cornish pasties and sausage rolls would therefore be zero-rated where they are cooling naturally in the racks, but not when they are stored in heated cabinets); or
  • provided in heat retaining packaging or other packaging specifically designed for hot food – where the use of such packaging is a clear indicator that food is being kept hot (for example foil-lined takeaway packaging); or
  • advertised, marketed or promoted in any way that indicates that it is supplied as hot.

HMRC confirm that there is no need to provide a definition of ‘bread’.  The new tests will zero rate all products that are taken out of the oven and allowed to cool naturally.  Products, including bread, which are kept hot in any way, will be standard rated.

The meaning of “premises” will be explained in HMRC guidance, and will standard rate all food sold for consumption in areas adjacent to the retailer such as tables and chairs outside a café or in areas that are shared with other retailers such as food courts in shopping centres.

Sports Nutrition Drinks

No changes as a result of the consultation.  All sports drinks will be taxed at the standard rate where they are marketed as products designed to enhance physical performance, accelerate recovery after exercise or build bulk.


One significant change to the existing legislation as a result of the consultation is that small self-storage operators will be able to opt to include capital expenditure under £250,000 within the capital goods scheme.  This may provide a benefit in increased VAT recovery.

Qualifying use for charities will enable VAT not to be charged upon certification by the charities.  Although not legislated for, HMRC will confirm its implementation for charities in written guidance.

Hairdresser’s chair rental

HMRC will clarify the types of services they believe are provided to a hairdresser under a rent a chair agreement and which will not qualify for exemption.

HMRC will also provide guidance as to what they think could be included in an exempt supply of land.

The supply of a whole building to a hairdresser will only be caught by the new standard rated provision if the land is supplied with goods or services as part of an overall supply of hairdressing facilities.

Holiday caravans

The reduced rate of VAT of 5% will apply to static holiday caravans and touring caravans longer than 7 meters. This will be introduced from 6 April 2013.

HMRC confirm that the boundary between residential and non-residential caravans is not clear cut.  However, if the caravan meets a single test, i.e. it qualifies for British Standard 3632; it will meet the criteria for zero rating. 

Approved alterations to listed buildings

Approved alterations to listed buildings will become standard rated from 1 October 2012.

HMRC will relax the transitional relief provisions to make them more generous to projects that were already underway at the time of the Budget announcement (21 March 2012) enabling them to continue to benefit from zero rating.  Zero rating will continue where listed building consent or equivalent had been applied for before 21 March 2012.  This transitional measure is in addition to the two measures introduced in the Budget i.e. where there was a written contract in place before 21 March 2012, or where 10% of the reconstruction of the building was completed before 21 March 2012. The transitional period is extended to 30 September 2015 allowing qualifying projects to continue to be zero rated until that time.

For further information please contact the TaxDesk on 0845 4900 509 and ask for Vaughn Chown.