Roasted! Morrisons loses £17m VAT battle over rotisserie chickens | Morrisons
UK supermarket chain Morrisons faces a £17 million tax bill after losing a protracted court battle against HMRC over the imposition of value added tax (VAT) on its rotisserie chicken.
The Supreme Court made its decision Whole cooked, chilled chickens are subject to the standard 20% VAT rate for hot meals.
The dispute relates to changes introduced by the controversial “dough tax” introduced by then-Chancellor George Osborne in 2012; In this tax, the Treasury imposed VAT on all hot takeaway foods sold by bakeries and supermarkets, such as Cornish pasties, pies and sausage rolls. This situation led to public reaction and caused the Treasury to partially take a step back.
The Treasury had initially said that foods sold above “ambient temperature” should be subject to VAT. It was later decided to apply VAT to food stored in a warm cupboard, while shelf-stable products sold cold or “incidentally hot” but eaten cold were exempt.
Morrisons argued that rotisserie chicken should not be taxed because it is either eaten cold or reheated for dinner.
The court decision stated that Morrisons sold the chicken in foil-lined bags marked “caution: hot product”.
An eyewitness said the chickens were not available for sale for more than two hours after being removed from the oven. If they were not sold by the end of this period, they were thrown away as waste.
Richard Nichols, who was Morrisons’ finance director until January, told the court the company’s tax and treasury team had always cooperated with HMRC on its own initiative. He added that Morrisons “operates in a low-margin, highly competitive industry sector” and needs certainty of tax treatment to shape pricing decisions.
He said research showed 80% of Morrisons customers who bought rotisserie chicken ate it cold or at a later meal.
Nichols said chickens were generally bought by people on low incomes and two-thirds of customers thought £4.50 was the maximum they could pay, up from the £4.40 price at the time of the hearings.
Nichols argued that with VAT the price would rise to £5.28 and “could lead to hundreds of thousands of fewer chickens being purchased each month, with repercussions on the entire supply chain and the balanced diet of families across the UK”. It is unclear whether Morrisons will immediately increase the retail price of chicken.
Eyewitnesses said that after two hours, the temperature of the chickens in the bag was between 42 and 45°C, while a naturally cooled chicken would have a temperature of 31.8°C. The judge said this showed that the products were stored in an environment that retained heat.
“Morrisons failed to account for the heat and fat/liquid retention properties of paper chicken bags and failed to account for the fact that cooled rotisserie chickens were removed from sale after two hours, whereas they were well above ambient temperature and not in a cooling orbit, meaning they would only be ‘incidentally hot’ when sold,” the decision concluded.
The ruling also stated: “HMRC did not make clear-cut decisions that chilled rotisserie chickens were zero-rated in 2012-14; Morrisons had a legitimate expectation on which it could rely.”
Morrisons has been contacted for comment.
