How much chocolate can you put on a gingerbread man before he becomes standard-rated for VAT?

You may not have considered this question before, so I’ll give you a little time to ponder it.

[fx: Incidental music plays]

So, got your answer?

Here’s the official one from HMRC: standard-rate VAT applies to “Gingerbread men decorated with chocolate unless this amounts to no more than a couple of dots for eyes”.

But, but, but… what if the eyes are not chocolate and instead the gingerbread man has a couple of chocolate buttons instead? And what if, hurtling dangerously out of the 19th century, the gingerbread man is actually a gingerbread woman?

Aside from this being a procedural quirk to file alongside tax breaks for wooden arrows, there is a serious point. The VAT rules are horrendously complicated when it comes to matters of food. Have a quick read (or rather, a long read) if you’re not convinced.

From the provisions for ostriches to Koi carp, from caveats for “cabbages that are grown for their appearance rather than consumption” to Horlicks tablets, and not forgetting the tax difference between halva (uncoated) and halva (coated with chocolate), marvel in the world of tax complexity.

A world of complexity that makes keeping to the law tough for firms, that runs up HMRC’s legal costs in tests cases and which hampers the creation and growth of micro and small businesses.

That’s why my reaction to the Pasty Tax fuss isn’t to think the Treasury should drop the whole idea of altering the proposed VAT simplification, aka Pasty Tax. (Full disclosure: my last pasty was purchased in South London, late March, branch still open, no photo taken.)

Rather, finding a good simple rule for sorting out the mess of hot versus cold food makes sense, even if the ambient temperature route has been about as successful as my last attempt to dance.

The answer? Well, the one that a spokesman for Greggs suggested when I was on Radio 5 talking about the issue a few weeks ago, has a lot going for it. Forget ambient temperature and instead base the tax position on the racks from which the pasties are sold. If they are sold from heated units intended to keep food hot, treat the pasty as a hot food. If they are sold from normal shelves without any heating, treat the food as cold food.

Distinguishing between the units makes for an easy to administer and audit system without worrying about varying temperature in food outlets. It also means it is a rule that is not pasty-specific, avoiding the sort of future arguments over when a pasty is not pasty that have caused us all such fun with biscuits, cakes and Jaffa Cakes.

Nice and simple and no wonder Lib Dem MP Stephen Gilbert tabled an amendment in Parliament to this effect. VAT would be simplified, and on we could go to fighting the battle of the gingerbread men’s buttons.


P.S. Yes, you really did read above about “cabbages that are grown for their appearance rather than consumption”. You may, or may not, find this film helpful. But these pictures should help. They are also big in Belgium, apparently.


* Mark Pack is Party President and is the editor of Liberal Democrat Newswire.

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This entry was posted in News.


  • Richard Dean 30th Apr '12 - 8:52am

    The Greggs spokeman suggested that? Then they have a cunning plan to get round it! Maybe keep the pasties, not on shelves, but in ovens until the last minute – arguably they would still be in the process of being cooked!

    An even easier solution would be to tax pasties independently of their temperature.

    I wonder if there are some general principles by which these kinds of issues of definition can be resolved?

  • John Richardson 30th Apr '12 - 9:09am

    I wonder if there are some general principles by which these kinds of issues of definition can be resolved?

    You could tax everything and redistribute the money through the tax and benefits system.

  • And you forgot the complex rules on the number of chocolate biscuits within boxes of mixed biscuits…

  • One problem with the ambient pasty suggestion – logically that would mean that an ambient bottle of lemonade should be Var free, whilst a chilled one (using the hot = chilled v ambient argument) would be Vatable. With the exception of raw ingredients, all food has had value added in some way, so if we had a universal low rate of Vat for food, another for luxury food (more than £X per kilo/litre) and the top rate reserved for restaurants and consumer durables it could potentially be fiscally neutral to the consumer, yet extinguish virtually all these classification arguments at source.

    Yes the Daily Mail would have a fit, no doubt blaming Europe, but I’m fairly sure if you lined up all the anomalous products and asked the public what was and wasn’t Vatable, I’m certain they would be equally confused (and outraged) that their particular favourite was Vatable whereas equivalent other products weren’t

  • I wonder what the net cost to the consumer/exchequer would be of charging VAT on all foods at 5%?

  • Peter Watson 30th Apr '12 - 12:29pm

    There are still plenty of loopholes,
    What if I sell something straight from the oven, baking pasties to order? Do I need to let them stand unheated for a minimum period before I can sell them VAT-free?
    What if I sell cold pasties and offer an optional free (or very cheap VAT-able ) heating service?
    What about freshly baked bread?
    It seems to me that the Pasty Tax fails to solve a problem that nobody knew about anyway.

    Every time we close one of these VAT loopholes it looks like we are trying to squeeze a bit more money out of poorer people so maybe it would be politically expedient to not bother if the sums are small or to be open and consistent and radically overhaul the entire VAT (and income tax and benefits) system (something I’ve been learning about in a related thread) rather than face the drip-drip of bad news stories.

  • A proper simplification would be to forget the distinction entirely. There is no logic in the modern world for taxing hot food differently from cold food, any more than there is for taxing cakes differently from biscuits.

  • Alisdair,

    “What is needed is a full review of the scope and coverage of VAT on “foodstuffs”, to finally close the loopholes and anomalies and to take account of modern snack foods and tastes.”

    I would agree with your assessment. Politically, I think such a review may be best undertaken as part of a wide ranging reform of the tax system along the lines of the Mirrlees review:

    – Reforming council tax and abolishing stamp duty: While stamp duty is characterised as “among the most inefficient and damaging of all taxes”, the review suggests reforming council tax to bring payments in line with up-to-date values and fully proportional to house value.

    – Integrating income tax and National Insurance: The National Insurance is deemed as “no longer serving any purpose”, and is recommended to be integrated into income tax.

    – Replacing VAT, which is “needlessly complex and inefficient”. Instead a VAT equivalent should be introduced, extending to nearly all spending, and extra tax revenue used to reduce income tax and raise benefits.

    – Simplifying the benefits system: The current system is “not integrated and reduces incentives to work and earn much more than is necessary”, according to the review, which welcomes the government proposals for a Universal Credit.

    – Replacing fuel duty with congestion charge: While more fuel-efficient cars mean less tax revenue, the fuel duty does not address traffic congestion – “the main cost of driving”. Congestion charging is recommended to replace most of the fuel duty.

    – Reforming savings tax: The review criticises “hugely different effective tax rates” which are poorly designed for some savings and disincentives for others.

  • Keith Browning 30th Apr '12 - 1:25pm

    Surely this is a case for one standard rate on all digestibles, wherever and whenever consumed. Such a level playing field would transform the restaurant and cafe business – and perhaps even kick start the economy – now thats an idea. Can I be Chancellor next? I no financial interests in anything, have never met a media executive, although I did live next door to a Sky technician for a short time.

  • ==> Mark Pack

    Sadly your proposal does not work “I think whether you use equipment to keep food warm after it has come out of the oven is as good a dividing line as anyone can come up with as it provides a clear, tangible question, the answer to which then determines the tax (by all means treat that as a challenge!).”

    Under your proposal: if you go into the fish and chip shop, and there is a piece of cod in the keep hot tray, it would be vat-ed because it is being kept warm. But if you ask for haddock, which is usually cooked to order, it would be VAT free, because it will not be kept warm after cooking.

    Similarly a McDonalds Big Mac would attract VAT, but if you ask for one without gherkins, it would be VAT free, because it would not enter the keeping hot rack.

    If the product would be discarded when cold (Big Macs, cod, toasted sandwiches, coffee etc) then it is hot food and liable to VAT. If it would not be discarded when cold (bread, other bakery items) then it is cold food that is incidentally hot. For pasties to be exempt, Greggs would need to show that existing cold ones are sold first, with customers having no preference for a hot one over a cold one. If people take the hot ones in preference to the cold ones, then the hotness is intrinsic.

    Clearly it would be better to have a universal, lower, sales tax. Many exempt items (such as children’s clothes – rich people buy in monsoon, as opposed to Asda) are regressive, although some (fruit and veg) are progressive. I doubt that extending VAT to everything would have a meaningful impact on the distribution of income.

    About half of all goods are VAT-ed, so the sensible policy is to levy VAT on everything, at 10%. But the EU has a minimum VAT rate of 15%, from memory, so we are heavily constrained.

  • Tim

    If the minimum is 15% , how come we have 5% on fuel (and bizarrely on cigarette lighters/fuel) ?

  • Redndead: the standard rate must be 15% (we reduced VAT on fuel to 5% because EU law did not allow us to abolish it).

  • Simon Titley 30th Apr '12 - 3:15pm

    @Tim Leunig – “if you go into the fish and chip shop, and there is a piece of cod in the keep hot tray…”

    Is that the piece of cod that passeth all understanding?

  • Ed Maxfield 30th Apr '12 - 3:55pm

    Redndead and Tim Leunig

    There is a minimum for standard rated supplies which is 15% and a minimum for lower rated supplies which is 5% (the UK’s 0% rating for some supplies is a historic anomaly that we are supposed to have got rid of by now – although we havent completely we are not allowed to make any new 0% rated supplies).

    So while it is not possible to charge a standard rate of less than 15% I am not sure it is correct to say that it would be impossible to make all food 5% rated. I cannot be sure without checking the wording of the VAT Directive but I suspect it says member states have the ability to make supplies of food subject to a lower rate so the UK could change hot food, confectionery etc to the lower rate without breaking any rules.

  • Except that not everyone pays income tax, but everyone has to eat.

  • Ed – we could do that, but when you have 2 rates, you will get disputes over whether something is in the lower rate or not. All I was saying is that we can’t have a revenue neutral switch to a single rate, owing to EU law. The law exists to stop EU states undercutting each other to try to win cross border sales, but is a nuisance here.

  • all food should be VAT free, unless you are staying on the premises to eat it. In that case you are getting a non-essential service. Food choices should only be influenced by better education and better product labelling.

  • Peter Watson 1st May '12 - 1:23pm

    I almost agree entirely with you.
    I am, however, comfortable with the idea that additional tax/duty can be used to guide individual behaviour or to pay for costs incurred by the public because of an individual’s choice, e.g. cigarettes, alcohol and fuel. In principle I would not be opposed to a duty on unhealthy food if someone with the wisdom of Solomon could devise a definition.

  • John Murray 1st May '12 - 2:23pm

    “Simon Titley Apr 30 – 3:15 pm
    @Tim Leunig – “if you go into the fish and chip shop, and there is a piece of cod in the keep hot tray…”
    Is that the piece of cod that passeth all understanding?”
    I like that! I’ll find a plaice for it in our church magazine!

  • Matthew Huntbach 1st May '12 - 4:34pm

    What a sheltered world you live in Mark, ornamental cabbages aren’t unusual in this country, I’ve seen them in flower arrangements on sale in supermarkets here.

    My understanding is that the loophole whose closure has been dubbed the “pasty tax” was intended to cover freshly baked bread – that is, it was introduced in order that small bakeries who bake bread on the premises should not have to collect VAT on the bread even if it is hot when sold. A large chain which has devised a system for preparing hot food in general and keeping it in a way that customers may buy it while still hot and are buying it while still hot specifically to eat as such, is quite clearly exploiting this in a way that was not part of its original intention. To be able to do this I suggest requires an investment in equipment and delivery systems which would be much harder for small independent businesses. It is therefore unfair competition against smal businesses who do not have the volume of sales to be able to use the “this is not really hot food, it’s just freshly cooked food that is cooling down” line.

    I suspect most people in this country have been led to believe there really was some special tax on pasties, however prepared, introduced for some vindictive reason by this government. I suggest we reflect on this, and use it as an argument to move to a more mature politics where we can discuss things in a sensible way. So let’s drop use of silly and misleading slogans for new policies – for example, “tycoon tax”, what on earth is that? Using this phrase rather than one which is clealry explanatory is childish and patronising to the electorate.

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