"The system whereby VAT must be levied on goods and services derives, of course, from the EU, and its basic ground-rules are laid down in what is known as the Sixth VAT directive (most recently updated as 2006/112/EC). One of these rules is that certain goods, such as food, may be “zero-rated”, meaning that no tax need be paid. But back in 1984 our Tory government decided that, by making an exception (which is unique among EU countries) for fish and chips and other “hot takeaway food”, it could, over the years, raise billions of pounds in VAT. This controversially brought takeway shops into line with restaurants which, under EU law, already had to charge VAT for providing a “service”.
In 1994, however, Herr Manfred Bog, the German owner of three snack vans, embarked on a long legal battle after his local tax authorities ruled that, because his vans had an awning, beneath which his customers could shelter while eating their wurst, he was providing not “goods” but a “service”. For this he must therefore pay full VAT. Last year, as my colleague Richard North explains in detail on his EU Referendum blog, this and other cases were finally decided by the European Court of Justice, which ruled that Herr Bog’s takeway snacks were indeed “food” and not a “service”. He and other takeaway sellers could therefore, as the Sixth VAT directive allowed, be taxed at a lower rate of VAT.
This ruling excited the Fish Fryers’ Federation and other takeway concerns in Britain, where food is zero-rated. It meant, they thought, that not only could they drop their prices by 20 per cent, but also they might be able to claim billions of pounds back from the Government, for all the years they had wrongly been made to pay VAT. To avoid deep embarrassment, our Government had to think hard. The result was Mr Osborne’ s recent decision that hot food sold by shops must now be included as “hot takeaway food”, under the system introduced in 1984 and approved by Brussels. Hence, thanks to EU law, the bizarre new arrangement whereby the price of a cold sausage roll sold tax-free by a village shop will immediately go up by 20 per cent when it is popped into a microwave for 30 seconds."