Sub One Ltd v Revenue And Customs

The hot-food exception to zero-rating requires an objective enquiry. The question is whether, viewed as the terms of the bargain, the food was heated to enable it to be consumed above ambient air temperature. The enquiry considers what the supplier and customer said and did, including presentation and advertising.

Fiscal neutrality permits a Member State to draw the boundary between zero-rated and standard-rated food, but prevents objectively similar supplies from receiving different treatment. A taxpayer whose own supplies are correctly standard-rated cannot obtain a refund merely because comparable supplies were historically treated unlawfully as zero-rated. Food may be standard-rated as supplied in the course of catering, whether characterised as goods or services.

Sub One Limited, a Subway franchisee, appealed from the decision of the Upper Tribunal (Tax and Chancery Chamber), which had dismissed its appeal from the First-tier Tribunal. The tribunals held that toasted sandwiches and meatball marinara were supplies of hot food under Schedule 8 Part II Group 1 Note 3(b) of the Value Added Tax Act 1994, and were therefore standard-rated rather than zero-rated.

The appeal challenged the construction of the hot-food exception, the application of fiscal neutrality and equal treatment principles, the classification of the supplies as goods or services, the refusal to admit fresh evidence, and the refusal to refer questions to the Court of Justice. The central issue was whether the statutory test was subjective or objective and what remedy followed from inconsistent earlier tribunal decisions.

1. Appeal dismissed. The Court of Appeal, in the judgment of McCombe LJ agreed by Briggs and Rimer LJJ, held that Note 3(b)(i) of Schedule 8 Part II of the Value Added Tax Act 1994 had to be read consistently with EU law.
2. The applicable test was objective, not a test of the supplier’s subjective purpose. The court had to determine from the parties’ words and conduct, including the presentation of the food and advertising, whether supplying the product to be eaten hot formed part of the bargain. The approach in John Pimblett & Sons Ltd v Customs and Excise Commissioners [1988] STC 358, insofar as it treated the supplier’s subjective purpose as decisive, was not followed. The result in Pimblett would nevertheless have been the same on its facts.
3. The Marleasing obligation, as explained in Vodafone 2 v Revenue and Customs Commissioners [2009] STC 1480, permitted the statutory provision to be read down to achieve an objective test. On the facts found by the First-tier Tribunal, both toasted Subs and meatball marinara had been heated for the purpose of enabling consumption above ambient temperature and were standard-rated.
4. The United Kingdom retained discretion to determine the boundary between zero-rating and standard-rating under Article 110 of the Principal VAT Directive. That discretion did not permit objectively similar supplies to be taxed differently. Applying Rank Group plc v Revenue and Customs Commissioners [2012] STC 23, similarity was assessed from the typical consumer’s viewpoint. Toasted Subs were objectively similar to comparable supplies that had received zero-rating, but meatball marinara was not shown to be so similar.
5. Fiscal neutrality did not entitle the appellant to benefit from unlawful treatment of other taxpayers. The inconsistent tribunal decisions were not an entrenched judicial interpretation of the legislation of the kind considered in Commission v Italy [2003] ECR I-14637. The earlier decisions were res judicata only for the relevant tax years. The goods-or-services argument also failed: the legislation could exclude supplies made in the course of catering from zero-rating regardless of their classification for EU purposes.
6. The refusal to admit fresh evidence was within the Upper Tribunal’s discretion, and a reference to the Court of Justice was unnecessary.

1. Court of Appeal (Civil Division): appeal dismissed on 10 June 2014.
2. Upper Tribunal (Tax and Chancery Chamber): dismissed the appeal from the First-tier Tribunal on 3 October 2012.
3. First-tier Tribunal (Tax): dismissed the taxpayer’s appeal against HMRC’s standard-rating decision on 14 October 2010.