In order to differentiate between hot and cold food, the Treasury initially proposed that only food sold above “ambient temperature” should be taxable, leading to the possibility that the weather could determine whether a pie was VAT-rated or not.
Under the new rules – confirmed in a letter to the Commons treasury committee – VAT will only be charged on hot pies stored in a hot cabinet; those placed on a rack to be sold when cold will be exempt.
The Treasury says most Greggs pasties fall into the cold-rack category. It now estimates the plan will raise £70m in extra VAT, against £110m under the original plan.
Separately Mr. Osborne has agreed that static caravans used for holidays will be charged at 5 per cent, compared with the 20 per cent originally mooted.
The addition of this apparent new complexity into the tax system is explained as a “step” between zero-rated static caravans used for homes and the 20 per cent charged for mobile holiday caravans.
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