The so-called "pasty tax", introduced in Chancellor George Osborne's Budget earlier this year, comes into force on 1 October, and experts have warned that it could push some struggling businesses to the edge.
Sales of hot take-away food will attract VAT at 20% from Monday. There are five tests for traders to apply to know whether they are liable for the tax. It applies to anyone selling hot food for eating off their premises.
Following the introduction of the new regulations, businesses will have to ask themselves five questions:
â- Has it been heated to order?
â- Has it been kept hot after being heated?
â- Has it been provided in a packaging that retains heat?
â- Has it been marketed to indicate that it is supplied hot?
If the answer to any of those questions is yes, then the food will attract the full rate of VAT.
Greg Mayne, director of indirect tax services at accountancy firm Reeves, said: "The VAT rise will impact on revenue for already struggling businesses and may tip some over the brink at a time when many people are cutting back on their discretionary spending, particularly eating out. This is going to hurt hot-food sellers and may prove too much for some to survive.
"The message to traders, whether they are selling pasties from a shop or hot chestnuts from a stall, is ‘don't bury your head in the sand' and ignore the VAT.
"Many places are suddenly going to find they should be charging VAT from next week and could face significant fines if they fail to do so."
The Government has stated that the changes are to address anomalies that have developed over the years in the way VAT has been charged on food.
The five new tests are designed to ensure that hot take-away food is taxed in a consistent way at the standard rate of VAT.
Greg Mayne added: "The net has been cast far more widely now, bringing in everything from burger vans to kebab shops and sandwich bars, but the tests are relatively straightforward.
"A key issue is whether the product, or part of it, is hot - which is defined as above surrounding air temperature - at the time it is given to the customer. But there is no VAT on products, such as bread, which may be sold warm simply because they have just been baked."
This is because the Government limited the planned scope of the VAT extension, following widespread opposition from the baking industry. Food such as sausage rolls or pasties sold on shelves, but not being kept hot in a special cabinet, will remain not liable for VAT.
Shirley Smith, corporate partner at Reeves and head of Hospitality and Leisure Services, commented: "Her Majesty's Revenue and Customs (HMRC) recently announced new task forces to tackle what they call tax cheats. They expect to recover more than £19.5m by targeting, among others, those who do not pay the right amount of tax in restaurants in the South-east and Solent areas.
"Therefore it is important to understand the impact of the ‘pasty tax' on your business to ensure you correctly account for this VAT. The HMRC task force teams will visit traders to examine their records and carry out other investigations, which have been known to include ‘test eating' by visiting restaurants posing as customers."
By Neil Gerrard
E-mail your comments to Neil Gerrard here.
Looking for a new job? Find your next job here with Catererandhotelkeeper.com jobs