Subway heads for the High Court over meatball sub

Another row over hot food is heating up for George Osborne. This time it's Subway's "splodgilicious sub with tasty meatballs".

Because this particular Subway sandwich is warmed up before being sold it's slapped with VAT at 20%. Not fair says Subway. Why should a hot sandwich be treated any different? So this meatball sub is heading for the High Court.

Hot, sticky legalities

Subway claims this sub needs to be heated up in order to comply with food safety legislation - something pasties, sausage rolls and other products don't need. So Subway has to charge the full 20% VAT. But 100 Subway franchisees are challenging the decision - and next month the case goes to the Upper Tribunal for tax in the High Court.

Subway may feel emboldened by Greggs, a huge opponent of Osborne's move to tax food on all hot takeaway food sold by bakeries. (Shares in Greggs rebounded significantly on the news after the Government performed a U-Turn on the issue.)

Crucially, Greggs claimed in its VAT fight it didn't have to re-heat food. Food such as sausage rolls or pies removed from the oven and allowed to cool down are tax-free. That may likely - again - be the critical factor for a judgement here.

Cool down: pasties vs sandwiches

"It is all to do with the cooling process", Shadid Sadiq told Herald Scotland, part of the family which owns one of Scotland's biggest Subway franchises, "but I'm not sure how different ours is from sausage rolls coming out of an oven. It is hard enough getting people in the door and spending in a recession but we are now going to have to consider putting up prices and passing this tax on to customers."

However, Subway and the Sadiq family may be taking heart too from other legal decisions on food. Roll back to 2007 and McVities won its battle to have its Jaffa cakes classed as cakes, not chocolate-covered biscuits, which were subject to VAT. McVitie's was able to prove that Jaffa cakes go hard when stale, rather than soft. Result - no VAT payable.

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