Subway VAT appeal – Subway loses

| 4th November 2010

Two weeks ago, UK Subway franchisees were defeated in an appeal against HMRC in regards to paying VAT on toasted sandwiches. Essentially, they wanted the sandwiches to be “zero rated” i.e. no VAT to be charged on the sale of the toasted sandwiches eaten off the premises. However, its competitors (Quizmos, McDonalds) do not pay VAT on similar sandwiches.

The decision found that, under Note 3(b), Group 1, Schedule 8 of VATA 94, toasted sandwiches were standard rated (17.5% VAT).

The decision took all of 53 pages. The tribunal considered whether, for example, the ingredients in the meatball marinara were infused in the toaster oven. In our opinion the crux of the case hinged on whether a customer would be indifferent between eating the sandwich hot or cold. Would a cold meatball marinara be unpalatable?

The tribunal needed to establish exactly why the sandwiches needed to be heated “above ambient temperature” and required the input of a number of experts. An overhaul of the definitions is being sought by many franchisees

Subway is considering an appeal with respect to

1) unfair prejudice compared to its competitors

2) a toaster oven with a non-microwave element.

It would not take place in a hearing but by submission of a document.

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