Packaging, hot food and VAT. What the Morrisons case means for food retailers and takeaway businesses

HMRC has once again demonstrated its willingness to challenge the VAT treatment of hot takeaway food, as illustrated by the recent Tribunal decision in WM Morrison Supermarkets Ltd v HMRC. For food retailers and takeaway businesses, this case is a clear warning: VAT liability can turn on packaging and in-store processes, even where food is not marketed as hot. Businesses should assume their VAT position will be tested, and review whether their packaging and operational arrangements would withstand HMRC scrutiny.

Case background

This case concerned the VAT treatment of cooked rotisserie chickens sold by Morrisons and whether they qualified for zero-rating as food or should instead be treated as standard-rated hot takeaway food.

The Tribunal focused on the objective characteristics of the product, including how the chickens were prepared, packaged and sold, rather than how they were marketed to customers.

Morrisons sold cooked rotisserie chickens in plastic-lined bags, placed on unheated shelves for customers to pick up. The supermarket believed these supplies met the conditions for zero-rating under Schedule 8, Group 1 of the Value Added Tax Act 1994.

HMRC raised VAT assessments totalling just over £17m, arguing that the rotisserie chickens should have been standard rated at 20%.

Morrisons’ argument

Morrisons appealed to the Tribunal on two grounds:

1. On liability, arguing that the supplies should be zero-rated as food rather than treated as hot takeaway food; and
2. On legitimate expectation, claiming that earlier HMRC communications had indicated the chickens should be zero-rated.

 

HMRC’s position

HMRC argued that the rotisserie chickens were supplied hot and fell within the hot food exclusion from zero-rating. As a result, the supplies should be standard rated for VAT purposes, regardless of how the products were marketed or displayed.

 The Tribunal’s decision

The Tribunal found that, although the chickens were not marketed as hot food and were not kept on heated shelves, the packaging retained heat and materially slowed the cooling process. On that basis, the chickens were treated as hot food at the point of supply and were therefore standard rated.

In reaching this conclusion, the Tribunal also placed weight on the fact that the rotisserie chickens were removed from sale after two hours while still well above ambient temperature. The judge noted that, at the point of sale, the chickens were not on a cooling trajectory that would mean they were only “incidentally hot” when supplied. This reinforced the conclusion that the supplies fell within the hot food exclusion from zero-rating.

The Tribunal dismissed Morrisons’ appeal in full, including the argument based on legitimate expectation.

The decision confirms that food does not need to be marketed or labelled as “hot” for the hot food rules to apply. Instead, VAT liability turns on the objective characteristics of the supply, including temperature at the point of sale, heat retention, and the practical reality of how the food is handled and sold.

Business implications

The consequences of this decision are not limited to rotisserie chickens or supermarkets. It potentially affects any cooked or freshly baked items supplied while hot in heat-retaining bags, trays or wraps, even where the product is not marketed as hot.

The case highlights why the VAT treatment of prepared and takeaway food continues to cause difficulty. VAT liability can be driven by packaging and operational arrangements, even where food is not actively kept hot after cooking.

Decisions around packaging, holding times, shelf placement and food handling are often made for commercial, hygiene or customer-experience reasons, but they can have unintended VAT consequences. Simply removing heated display units or avoiding “hot food” branding is not necessarily sufficient to support zero-rating.

HMRC is actively reviewing hot food supplies in this area, and businesses are increasingly seeing enquiries, assessments and retrospective challenges where packaging or handling has not been carefully considered.

How Gravita can help

Our VAT team regularly advises food retailers, supermarkets and takeaway operators on the VAT treatment of prepared and hot food. We can review your current offering against VAT legislation and recent case law to identify areas of risk, likely HMRC challenge points and practical steps to mitigate exposure.

This includes advising on packaging and operational changes, reviewing historic positions, supporting disclosures where required, and dealing directly with HMRC on your behalf. If you are unsure whether your current arrangements would withstand HMRC scrutiny, now is the right time to take advice.

If you would like to discuss your position or arrange a VAT health check, please contact our VAT partner David Gage.