Chancellor closes VAT anomaly loopholes

Accountants will no doubt be aware that George Osborne acted to close the VAT anomaly surrounding hot food and sports drinks when he presented his Budget last week.

Supermarkets have been allowed to sell hot food without charging VAT, whereas a similar product bought from a takeaway does include VAT. Likewise, sports drinks have been VAT exempt, but normal soft drinks are not.

The Treasury hopes to gain an additional £50 million in 2012/13 by shutting down these VAT loopholes.

Stephen Coleclough, one of PwC’s tax partners, said the issue of hot food is still not cut and dried. He explained that sandwiches that are warmer than the air temperature will attract VAT, but for some strange reason freshly baked bread products will still be VAT exempt. The government is trying to get rid of loopholes, but in the process it has created new ones that will undoubtedly lead to new legal battles.

He went on to say that the move was a step in the right direction towards simplifying indirect taxation. On the downside, office workers will see the cost of their lunch increase by 20% and some people will ask whether it is right to increase the price of sports drinks in London 2012 year when the government is attempting to encourage us to take up more sporting activities.

Ross McKay, the tax manager at BDO, said the changes would bring clarity to what has been a grey area for the accounting profession.

Bakery company Greggs saw £20 million wiped off its share price the day after the Chancellor’s announcement.

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