Subway, the largest purveyor of sandwiches in the UK, has lost a tax tribunal over a decision that forces it to charge VAT on hot food, M&C Report can reveal The operator, which runs around 1,400 outlets through franchises, has been locked in an 18-month battle to reverse a ruling by HM Revenue & Customs (HMRC) that meant its franchisees were liable over millions of pounds worth of unpaid taxes. Subway has always argued that it had been given previous assurances by UK tax authorities that its toasted sandwiches would be treated as its normal subs and not subject to VAT. The operator is now planning an appeal against the HMRC decision that could see the matter taken up in the courts. HMRC could also be hit by dozens of appeals by individual franchisee holders. The government is understood to carrying out assessments of each Subway franchisee to determine how much if anything is owed by each individual business. The ruling by HMRC was announced last Friday, 15 October. A spokeswoman for Subway in the UK said: “The Subway chain is disappointed with the decision in the hearing of its franchisee’s appeal against HM Revenue & Customs (HMRC) regarding the addition of VAT to the toasted range of subs. “The 1,400 stores in the UK are owned and operated by independent franchisees; small business people who will be hurt by this decision and will now have to operate at a competitive disadvantage compared to other sandwich shops. “It remains the chain’s belief that this decision represents a change in policy for HMRC who previously published a public notice saying that toasted sandwiches should be treated in the same way as other sandwiches and not taxed.” She added the company believed the Subway decision was “inconsistent” with VAT policies on other toasted sandwich sellers. She concluded: “Subway franchisees pride themselves on being good neighbours and responsible business owners in the communities in which they work. It is therefore important to them that all local tax laws and regulations are followed. “Subway franchisees in the UK feel strongly that the finding of the tribunal that the toasted range of subs are standard rated is wrong and will continue to robustly challenge it with further appeals.” Last year when the VAT battle came to light, Jim Pinder, partner VAT services at BDO Stoy Hayward, said that the decision would have a huge impact on Subway. The ruling means that 35p out of every £2 sandwich would need to be paid to HMRC, rising to 40p in January when VAT moves up to 20%.

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