Sub One Ltd (T/A Subway) v HM Revenue and Customs
| Jurisdiction | UK Non-devolved |
| Judgment Date | 14 October 2010 |
| Neutral Citation | [2010] UKFTT 487 (TC) ,[2009] UKFTT 385 (TC) |
| Date | 14 October 2010 |
| Court | First-tier Tribunal (Tax Chamber) |
[2011] TC 00747
[2010] UKFTT 487 (TC)
Michael Tildesley Obe (Chairman), Marilyn Crompton, Susan Stott FCA (Member)
Andrew Young counsel instructed by Dass Solicitors for the Appellant
Owain Thomas counsel instructed by the General Counsel and Solicitor to HM Revenue and Customs, for HMRC
The following cases were referred to in the judgment:
European Independent Purchasing Co LtdVAT No. 20,697; [2008] BVC 4,080
Ian Flockton Developments Ltd v C & E CommrsVAT (1987) 3 BVC 23
John Pimblett & Sons Ltd v C & E CommrsVAT (1987) 3 BVC 3
Malik (t/a Hotline Foods) v C & E CommrsVAT [1998] BVC 181
R & C Commrs v Procter & Gamble UKVAT[2009] BVC 461
Zero-rating - Food - Sale of toasted sandwiches and a filling, meatball marinara, for consumption off the premises - Whether a supply in the course of catering - Whether the appellant's dominant purpose for heating the food was to enable it to be consumed at above ambient air temperature - Value Added Tax Act 1994, Value Added Tax Act 1994 schedule 8 group 1Sch. 8, Grp. 1, Note (3)(b).
The appeal was concerned with the correct VAT liability of supplies of toasted Subway sandwiches, known as Subs, and meatballs. The primary issue for the tribunal was whether the toasted Subs and/or meatballs were to be regarded as hot food within the meaning of Note (3)(b) to Grp. 1. If so, the tribunal was required to establish whether the dominant purpose of heating the product was to enable it to be consumed at temperature above the ambient air temperature.
The appeal was one of about 250 appeals from Subway franchisees and was heard as the lead appeal for the purpose of determining the VAT liability of the disputed supplies. The tribunal heard that there were almost 33,000 Subway stores worldwide and that the appellant was franchisee for four of those stores in the Huddersfield area. Subway stores in the UK offered a standard range of 17 types of Sub, and toasted Subs made up approximately 80 per cent of their total sales. The tribunal identified that the appeal concerned two separate foodstuffs, namely toasted Subs and meatballs in marinara sauce, and it was agreed that the food was for consumption off the premises. Should it be found that the supply was of hot food, it would be a supply in the course of catering and would be excluded from zero-rating.
The appellant submitted that the dominant purpose of toasting the Sub and heating the meatballs was to firm up the bread and improve the texture and flavour of the food. It stated that the purpose of heating was not to supply hot food. The effects of toasting the bread were: to make the bread harder and crisper; to enhance the visual appearance; to improve the aroma; and to bring out the flavour of the bread and ingredients. The effect of heating the meatballs was to infuse them with the marinara sauce and to enhance the flavour and palatability of the product.
The commissioners pointed to the appellant's concession that the Sub had been heated above the ambient air temperature. The question that remained was whether the toasting process had been carried out for the purpose of enabling the Sub to be consumed at above the ambient temperature. In the commissioners' view, it had because of the appellant's declared purpose of producing freshly toasted sandwiches. The commissioners submitted that the statutory test had been satisfied unless the appellant could establish that the application of heat in the toasting process was incidental to the commercial purpose of providing freshly toasted sandwiches. The commissioners submitted that it was not incidental that the Sub was still above the ambient air temperature when provided to the customer, having regard to all the effort put in by the appellant to supply a freshly toasted sandwich.
The tribunal accepted expert evidence that the temperature of toasted Subs was above the ambient air temperature at the time they were provided to the customers. It noted that the Subs lost their distinctive characteristics and flavour if they were allowed to cool and concluded that the toasting process was intimately connected with the temperature at which the toasted sandwich was eaten. The appellant deliberately put the bread and fillings into a hot powerful oven which it knew heated them to temperatures significantly above the ambient air temperature. The application of heat was central, not incidental, to the process of producing a toasted Sub and the sandwich was presented to the customer hot and ready to eat. The dominant purpose in heating the toasted Sub and the meatball marinara was to enable them to be consumed while hot.
Held, dismissing the company's appeal:
1. Toasted subs met the definition of hot food in Value Added Tax Act 1994 schedule 8 group 1Note (3)(b) of Grp. 1 of Sch. 8 to the Value Added Tax Act 1994.
2. Meatball marinara met the definition of hot food in Note (3)(b) of Grp. 1 of Sch. 8.
3. Toasted sub sandwiches and meatball marinara were liable to VAT at the standard rate.
1. By a re-amended Notice of Appeal dated 23 March 2010 the Appellant appeals against HMRC's decision to treat supplies of toasted sandwiches (known as Subs) and meatballs as standard rated for the purposes of VAT. The Appellant further appeals against HMRC's refusal to credit it with the VAT accounted for on the disputed supplies.
2. This Appeal is concerned solely with the correct VAT liability of the disputed supplies of toasted Subs and meatballs.
3. The issues to be decided are:
(2) Are any of the supplies of toasted subs and/or meatballs to be regarded as supplies of hot food within the meaning of Note 3(b) Value Added Tax Act 1994 schedule 8 group 1Group 1 Schedule 8 of the VAT Act 1994, and if so
(3) What was the purpose of heating each and every sub and/or meatballs product, and
(4) What is the proper rate of tax for each item supplied.
4. The question to be determined is whether the Appellant's dominant purpose was to enable the supplies of toasted Subs and meatballs to be consumed at a temperature above the ambient temperature. The test is a subjective one.
5. This Appeal is one of about 250 Appeals from Subway franchisees challenging the correct VAT treatment of the supplies of toasted subs and meatballs. On 1 February 2010 the Tribunal directed that the Appellant be treated as the lead Appeal for the purpose of determining the liability of the disputed supplies in accordance with rule 18(1) of the Tribunal Procedure (First Tier Tribunal) (Tax Chamber) Rules 2009. Directions have been made binding the other Appeals to the decision in this Appeal subject to the rights of the other Appellants to make representations in accordance with rule 18(4) of the 2009 Rules.
6. The VAT & Duties Tribunal in European Independent Purchasing Co Ltd No. 20,697; [2008] BVC 4080 decided that supplies of toasted Subs specifically restricted to the Melt and Italian BMT varieties were standard rated for the purposes of VAT. This decision pre-dated the changes in Tribunal rules which allowed the option of lead Appeals, and was, therefore, not binding. The Appellant argued that the decision was wrongly decided, and should be ignored for the purposes of this Appeal.
7. This decision is set out in three parts:
(2) The substantive decision on the correct VAT liability of the disputed supplies.
(3) The findings that relate to its status as a lead Appeal.
(4) The chronology of the Appeal and the connected procedural matters.
8. The Appeal was heard on the 19, 20 and 21 May 2010. The Appeal was adjourned part-heard to enable the Appellant to submit its final submissions in writing with rights of reply and further reply given to HMRC and the Appellant respectively. The Tribunal reconvened in the absence of the parties on 15 June 2010 to consider the evidence and the submissions.
9. The Tribunal heard evidence for the Appellants from
(2) Mrs Kay Mulligan who was a director of the Appellant. She gave evidence on how the Appellant operated its Subway franchised stores in and around the Huddersfield area. Mrs Kay Mulligan was the controlling mind of the Appellant, and it was her intention in respect of the disputed supplies that formed the dispute in this Appeal
(3) Professor Bronislaw Leon Wedzicha of the School of Food Studies and Nutrition, The University of Leeds, gave expert evidence on the chemical changes associated with the toasting of a Subway sandwich, and with the marinating of the meatballs with the sauce.
(4) Professor Liam Blunt, Taylor Hobson Chair of Surface Metrology at the School of Engineering, University of Huddersfield, gave expert evidence on the temperature measurements of toasted sandwiches at the Appellant's Subway store in Kings Street, Huddersfield.
(5) Dipak Jotangia, a partner in the firm of Dass Solicitors who provided a witness statement which related to the Appeal's status as a lead Appeal
10. The Tribunal heard evidence for HMRC from
(2) Mrs Rachana Pancholi, a Subway franchisee, who was also a board member of the International Franchise Advertising Fund which arranged advertising on behalf of United Kingdom Subway franchisees. Mrs Pancholi was principally called to give evidence on the various advertising campaigns for Subway products in the United Kingdom. Her oral testimony, however, expanded to include her operations as a franchisee.
(3) Dr Slim Dinsdale, an independent food safety and quality consultant, who gave expert evidence on the temperature measurement of toasted sandwiches at the Appellant's Subway store in Kings Street, Huddersfield. He also commented on Professor Wedzicha's report with regard to the changes in the meatballs.
11. Mr Thomas counsel for HMRC explained that Mrs Pancholi gave a statement to the Appellant's solicitors. HMRC decided to call her after being informed that the Appellant did not require her to give evidence. HMRC considered that it was right and...
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