Morrisons loses £17mn food fight as chicken tax comes home to roost

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UK supermarket chain Morrisons faces a £17mn bill after it lost a long-running court battle to prevent value added tax being charged on its rotisserie chickens.

The UK high court determined that the chickens should be subject to the standard VAT rate of 20 per cent for hot food.

The case stems from changes brought in with George Osborne’s infamous “pasty tax” of 2012, when the Treasury sought to apply VAT to all hot takeaway food, such as pies, sausage rolls and pasties.

In response to a public outcry, it rowed back on its initial proposal that food sold above “ambient temperature” should be taxable. Critics noted that the weather could determine if a product attracted VAT.

The Treasury later decided that VAT would be applied to products stored in a hot cabinet, while those placed on a rack to be sold either cold or “incidentally hot” were exempt.

Morrisons has argued that its rotisserie chickens should be exempt because most of its customers consumed the product cold or reheated it later in the day as part of an evening meal.

The December 11 ruling, which was made public on Monday, noted that Morrisons sold the chickens in packaging with plastic lining for hot food and with a “Caution: Hot Product” label. Morrisons declined to comment on the ruling.

The judge concluded that HMRC had never set out specific rules on VAT and rotisserie chickens.

He also said that Morrisons had not disclosed material information, such as the fact that it withdrew its rotisserie chickens from sale after two hours, when they were still above ambient temperature.

Expert witnesses in the case argued that a cooling rotisserie chicken in a bag would be between 42 and 45℃ after two hours. By contrast, without the bag, the chicken would be around 31.8℃.

The judge ruled that the Morrisons chickens would therefore be more than just “incidentally hot” when sold.

Industry and tax experts say the 13-year case shows up the problems of complexity in the UK tax system, where courts are forced to rule on the production and consumption of food to determine if VAT should be added to the price.

Last year a UK judge ruled that some kinds of flapjack were cakes, after a previous rulings on Jaffa Cakes and giant marshmallows.