Morrisons is preparing to be slapped with a £17million tax bill by HM Revenue and Customs (HMRC) after losing a court battle over the charging of VAT on rotisserie chicken.
A high court has ruled that whole cooked cool-down chickens should be levied with the standard 20 per cent value added tax for all hot food.
This legal battle originates from changes announced to the tax regime announced by former Conservative Party Chancellor George Osbourne in 2012.
The controversial “pastry tax” levied VAT on all hot takeaway food sold by bakeries and supermarkets, including pies and sausage rolls.
Morrisons faces £17m tax bill over rotisserie chicken
After widespread public outrage, the Treasury was forced to partially rollback how this HMRC levy was charged on establishments.
Initially, the Treasury asserted that food sold above “ambient temperature” will be subject to VAT, however then opted to apply VAT to foods stores in hot cabinets.
Notably, the Treasury exempting products placed on a rack that are sold either cold, or “incidentally hot” but eaten cold.
In court, Morrisons argued that its rotisserie chickens should not be subject to tax because they are either reheated at home or eaten cold.
A George Osbourne-era tax bill is coming Morrisons way
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GETTYHowever, the high court ruling stated that the supermarket giant sold the chickens in bags with foil lining which was labelled “caution: hot product”.
A witness claimed the chickens were not put up for for sale for more than two hours after they were taken out of the oven.
If these chickens had not been sold by the end of that time period, the were discarded for waste.
Addressing the court in January, Morrisons’ finance director Richard Nichols noted that the supermarket’s tax and treasury division has worked with HMRC of its own volition.
Mr Nichols defended his company and argued that Morrisons “operates in a highly competitive industry sector with low profit margins” which necessitates specific tax treatment for pricing purposes.
The finance director cited research that found 80 per cent of the supermarket’s customers bought rotisserie chickens ate them cold or for a later meal.
He also argued that this product is typically purchased by households on lower incomes with two-thirds of customers believing £4.50 was the most they would pay.
As the time of the court hearing, rotisserie chickens from Morrisons were sold at £4.40 a piece and VAT would bring this price closer to £5.28.
Morrisons sells rotisserie chickens
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GETTYCurrently, it is unknown whether the high street supermarket staple will immediately raise the retail price of the chicken in response to the ruling.
The court ruling stated: “Morrisons failed to disclose the heat and grease/fluid retention features of the chicken paper bags and the fact that cool-down rotisserie chickens were taken off sale after two hours, while they were still well above the ambient temperature and were not on a cooling trajectory that meant that they would only be ‘incidentally hot’ when sold.
“HMRC did not give clear and unambiguous rulings in 2012-14 that cool-down rotisserie chickens were zero-rated, which Morrisons had a legitimate expectation it could rely on.”
Morrisons has not provided comment on the ruling.