Under the new proposal, which will be announced by Chancellor George Osborne, hot takeaway food that is left to cool naturally will not be subject to VAT. This means that takeaway foods such as pasties and other snacks, which are not served directly from the oven and are left to cool in the glass cabinet, will not be subject to tax.
However, VAT will be applicable on foods that are kept hot by naturally delaying the cooling process - by using equipment such as heated cabinets, hot plates and heat lamps. In addition, food sold in heat retaining packaging will also be subject to tax.
The original proposal, which was set to be implemented beginning October 2012, charged 20% VAT on all hot food served above the ambient air temperature, including rotisserie chicken, sausage rolls, pies, pasties , with the exemption of freshly baked bread.
This move to modify VAT on hot takeaway food comes after consultation period, during which bakers protested over the proposal, while the MPs from all three main parties noted that the 'pasty tax' was unenforceable and would affect jobs and businesses.
Speaking about the new proposal, a Treasury spokesman said that after extensive engagement, the policy was improved, addressing practical concerns, ensuring that the new regime could be as simple as possible to apply.
"We have addressed these in a way that allows us to remove the inconsistent VAT treatment, while not imposing any additional requirement on businesses to test the temperature of their products," the spokesman added.
Currently, VAT is not applicable on most food and drink or hot baked products, but is payable on hot takeaway food with the exception of hot savories such as pasties and pies.
