Supermarket Loses Rotisserie Chicken VAT Case and Faces £17 Million Tax Clawback
- TBA
- 5 days ago
- 5 min read
Recently, the British supermarket giant Morrisons lost a high-profile value added tax (VAT) dispute.
The supermarket's 'Cool-Down Rotisserie Chickens' (CDRCs) were ruled to be hot food, meaning they should have been subject to the 20% standard rate of VAT rather than being zero-rated.
Consequently, the company now faces a tax clawback of approximately £17 million.
This case is significant not only because of the large sum involved but also because it has reignited tax discussions within the UK retail and catering industries regarding exactly which foods qualify as 'hot food', serving as an important precedent for the sector.
What exactly was the point of contention regarding VAT in this case, and how was the judgement reached?
Case background: where did the dispute originate?
This dispute can be traced back to 2012. At that time, the British Chancellor of the Exchequer, George Osborne, introduced the controversial 'pasty tax', which attempted to levy VAT on all hot takeaway food sold in bakeries and supermarkets, including Cornish pasties, meat pies, sausage rolls, and rotisserie chickens. This policy faced strong public backlash, and the Treasury was subsequently forced to make adjustments.
Initially, the Treasury proposed that any food sold above 'ambient temperature' should be taxed, but this standard was criticised as absurd because weather changes could directly affect tax outcomes.
The Treasury later changed the regulation: food kept in heated cabinets is subject to VAT, while food placed on shelves, sold cold or 'incidentally hot', and intended to be eaten cold, can be zero-rated.
Following the policy adjustment, Morrisons conducted consumer research and categorised its rotisserie chickens into two sales methods:
Hot Rotisserie Chickens (HRCs): kept in heated cabinets, clearly sold as hot food, and subject to VAT
Cool-Down Rotisserie Chickens (CDRCs): bagged after roasting but not placed in heated cabinets, using packaging that does not have an obvious heat-retention effect, and claimed to be zero-rated items
The core argument from Morrisons was that most customers do not eat the chicken immediately.
Instead, they eat it cold or save it to be reheated for dinner later that day. The company claimed that approximately 80% of customers fell into this category, and therefore these chickens should not be considered 'hot food'.
Consequently, between January 2017 and July 2020, Morrisons did not charge VAT on these 'whole cool-down rotisserie chickens'. However, over time, HM Revenue and Customs (HMRC) determined that this practice did not comply with regulations, with the disputed tax amount accumulating to £17,034,392. Both parties subsequently entered legal proceedings.
Assessing the legal case
In this multi-year litigation, the key issue considered by the court was not how customers ultimately consumed the chicken, but whether Morrisons was, in fact, providing hot food during the sales process.
Evidence showed that the so-called 'cool-down rotisserie chickens' were highly similar to hot food in the following respects:
The chickens were packed in foil-lined paper bags, which were clearly marked with 'Caution: Hot Product'
The chickens were displayed for a maximum of two hours after leaving the oven; if unsold, they were discarded as waste
Witnesses testified that the temperature of the bagged chickens remained between 42°C and 45°C after two hours, whereas the temperature of a naturally cooled chicken would be around 31.8°C
The court determined that this packaging and sales method created an environment that slowed down cooling and maintained heat.
Based on this, the judge held that these products were not merely 'incidentally hot' but were significantly above ambient temperature at the time of sale and were designed to be sold in a hot state.
Furthermore, although Morrisons raised a 'legitimate expectation' defence, arguing that past communications from HMRC led them to reasonably believe that the 'whole cool-down rotisserie chickens' could be zero-rated, the court rejected this claim.
It stated that HMRC had never made a clear, precise, and unambiguous ruling between 2012 and 2014 that would be sufficient to support such a strong argument.
The judgment also mentioned that Morrisons failed to provide evidence proving that they had clearly communicated this specific sales model to HMRC and received formal approval.
Following 61 pages of reasoning, the court finally ruled that the Morrisons whole cool-down rotisserie chickens remain 'hot food' in a legal sense and should be subject to 20% VAT.
As the judgment emphasised, the criteria for judgement do not depend on the product name, marketing rhetoric, or how consumers eat it after returning home, but rather on the objective state of the product and the sales method at the time of purchase.
Price, consumer, and industry impact
This tax battle over rotisserie chickens has not only cost Morrisons dearly, requiring a £17 million tax clawback, but will also affect the future selling price of the product, further impacting consumers, retailers, and the catering and food industry.
The then Finance Director of Morrisons, Richard Nichols, pointed out during the trial that consumers who buy rotisserie chickens usually have lower incomes, and two-thirds of customers consider £4.50 to be a psychological upper limit.
At the time of the trial, the chickens were sold for approximately £4.40, but once VAT is added, the price would rise to £5.28. The supermarket estimated that the price increase caused by VAT could result in hundreds of thousands fewer chickens being sold per month, creating a ripple effect on the supply chain and the diet of British families.
However, the court did not consider these economic consequences to be a decisive factor.
This tax battle eventually sent a clear signal: regarding VAT issues, regulatory authorities and courts focus on 'actual business conduct' rather than a company's own definition of a product or historical perceptions.
For the retail and catering industries, it is important to note:
The determination of whether an item constitutes 'hot food' is highly dependent on the specific sales method and objective presentation
The form of packaging, display method, temperature at the time of sale, and marketing descriptions can all serve as key evidence for taxation
Relying long-term on informal policy interpretations or historical practices carries significant tax compliance risks.
At the same time, for all businesses, HMRC guidance is not equivalent to a legal guarantee and cannot completely eliminate tax risks.
Companies should not easily assume that a regulatory stance will not change. Once high tax amounts are involved, historical business models are very likely to be subject to retrospective review.
The global fast-food leader KFC also previously encountered a tax lawsuit regarding dipping sauces, ultimately needing to pay back £75,000 in VAT.
It is worth noting that VAT compliance is not limited to domestic UK retail enterprises. For import and export trade and cross-border e-commerce, product classification similarly directly affects the payment, deduction, and refund arrangements of VAT, and the boundaries of compliance are often even more complex.
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