Tribunal case: Are Subway ‘subs’ zero-rated?

Subway sandwiches (Subs) were the subject of a recent hearing before the tax tribunal. The appeal was concerned with the correct VAT liability of sales of Subs and meatballs in marinara sauce.

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 VATA 1994, Sch. 8, Grp. 1, Note (3)(b). If so, the tribunal was required to establish whether the dominant purpose of heating the product was to enable it to be consumed at a temperature above the ambient air temperature.

The appellant was franchisee for four of the UK Subway ‘stores’ and this was the lead appeal (out of 250 pending) for the purpose of determining the VAT liability of the disputed supplies.

Subway stores in the UK offer a standard range of 17 types of Sub, and toasted Subs made up approximately 80 per cent of their total sales. 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 claimed that the dominant purpose of toasting the Sub and heating the meatballs above the ambient air temperature was to firm up the bread and improve the texture and flavour of the food. It 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 question for the commissioners therefore 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. It was also noted that the Subs lost their distinctive characteristics and flavour if they were allowed to cool. Thus the toasting process was intimately connected with the temperature at which the toasted sandwich was eaten. And the dominant purpose in heating the toasted Sub and the meatball marinara was to enable them to be consumed while hot.

The tribunal dismissed the company’s appeal.

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