They’re ‘VAT’ it again – Court question highlights Subway may not be the healthiest fast food option After all

October 1, 2020

By: tme

Ai Law Legal Services

There is something about Subway that makes it feel healthier than other fast food chains, like McDonalds or KFC. Perhaps it is because you see what goes into it, as their staff follow their script moving down the counter constructing your sub as they go: “What bread would you like?”; “Six inch or Twelve?; Cheese and Toasted?; Any Salad?; Any sauce? Do you want crisps or a cookie with that for an extra 30p?”

After eating your lunch from Subway, you don’t quite get that feeling of guilt that you do when you have a McDonalds or some sort of burger, but following Ireland’s latest Supreme Court ruling: perhaps you should?

Ireland’s Supreme Court has issued a ruling declaring that the bread served at Subway does not actually meet the legal definition of “bread” because of its sugar content. The judges ruled that Subway’s bread is not a staple food because its sugar content is 10 percent of the weight of the flour in the dough.

The question is, why is the Irish Supreme Court even answering such a question? Well they are not debating which fast food chain is the most healthy (although their ruling has given us some helpful insight into that question too). The answer is because of tax. The case was brought before the court by Subway franchisee Bookfinders Ltd, which claimed that the bread Subway served qualified as a “staple food,” which, in Ireland, means that the bread would be exempt from value-added tax (VAT), thereby saving Subway money. A Subway franchise owner challenged the tax authorities’ decision not to issue a refund for value-added tax (VAT) on some takeout foods. Galway-based Bookfinders LTD said that it shouldn’t have to pay VAT on hot coffee and tea, or on the hot sandwiches that weren’t eaten inside the restaurant.

Hot drinks aside, the Value-Added Tax Act 1972 (Irish Statute) stipulates that sugar, fat, and “bread improver” cannot add up to more than 2 percent of the weight of the flour. Those limits are in place to prevent things like pastries and other sweet baked goods from being labeled as “staple foods” and exempt from being taxed.

The argument was that since the sandwiches contain bread, they should be considered a “staple food” and shouldn’t be taxed. But their argument backfired as the five Supreme Court judges countered by suggesting that those sandwiches aren’t served on “bread” at all, at least not under the “statutory definition of bread.”

This latest Subway ruling is in respect of its Irish franchisees. But, this is not the first time a famous food brand has come before the courts over such a question.

In the UK, the famous United Biscuits (UK) Ltd v The Commissioners of Customs and Excise (Lon 91/160 (VTD 6344)) was decided. Another name for that case is “the Jaffa Cake case” heard in 1991. The case tackled the question of whether Jaffa Cakes were chocolate covered biscuits (and therefore VATable at standard rate) or chocolate covered cakes (and therefore exempt). Even then, this was not the first case that tried such an issue with other known confectionary brands coming before the courts, so much so that there exists comparative tables that are used to determine what is or isn’t a biscuit.

The Jaffa Cake Case

In the Jaffa Cake case, HMRC had accepted, since the onset of VAT, that Jaffa Cakes were zero rated as cakes. Following a review, they changed their view and said Jaffa Cakes were biscuits partly covered in chocolate and therefore standard rated.

The Tribunal noted that:

– the use of the word “cake in “Jaffa Cake” does not mean it is a cake.

– the texture was like a cake

– but then the packaging was more like a packet of biscuits

– plus they usually were sold in the supermarket aisle next to the biscuits

– on going stale they become hard like a cake, rather than soft like a biscuit.

All in all, the Tribunal decided on Jaffa Cakes being a cake, and therefore zero rated, and not a biscuit.

The Snowball Case

Despite the technical in depth ruling in the Jaffa Cake Case, the answer was seemingly not good enough as the question came before the British courts again. This time with “the Snowball Case” (those tasty marshmallow domes with coconut on) in Lees of Scotland Ltd and Thomas Tunnock Ltd [2014] UKFTT 630 (TC03754). In that case HMRC were arguing that a Snowball was not a cake but was a biscuit and therefore liable to VAT at the standard rate. Without reading below, we have just carried out our own taste test, and must say our position is firmly in the camp that it is more of a cake feel than a biscuit, but let’s see.

We can’t describe the facts of the case and decision making better than De Voil Indeirect Tax Intelligence Reports on the case, which we quote:

“Having been provided with a plate comprising a number of confections (including the famous Jaffa Cake, a Mr Kipling Bakewell Tart, a Waitrose Meringue and a Snowball), the Judge, and the Tribunal Member came to the conclusion that the plate “looked like a plate of cakes” (perception is everything). They also sampled each confection (albeit apparently in moderation) either at the hearing itself or thereafter. (I cannot help the image I have in my head of the Judge and the Tribunal Member tucking in to a plateful of cakes!)

The question for the Tribunal to resolve was whether a Snowball displays “enough of the characteristics of a cake that it should be classified as such”. In the end, although the Tribunal found it a very fine balancing exercise (no doubt many samples were consumed in reaching the decision), it came down to a few core findings of fact which weighed very heavily. The first was that a Snowball looks like a cake. It is not out of place on a plate full of cakes. Secondly, a Snowball has the “mouth feel” (whatever that is) of a cake. Additionally, most people would want to enjoy a beverage of some sort whilst consuming it. It would often be eaten in a similar way and on similar occasions to cakes; for example to celebrate a birthday in an office. A snowball is a confection to be savoured but not whilst walking around or, for example, in the street. Most people would prefer to be sitting when eating a snowball and possibly, or preferably, depending on background, age, sex etc with a plate, a napkin or a piece of paper or even just a bare table so that the pieces of coconut which fly off do not create a great deal of mess. The Tribunal concluded that, although by no means everyone considers a Snowball to be a cake, these facts were sufficient for the Tribunal to conclude that a Snowball has sufficient characteristics to be characterised as a cake.”

‘VAT’ question keeps on being asked.

It seems despite the several rulings, this question will continue to be one that is brought before the courts – after all it is a decision that has a direct impact on a brand’s costings and so an important and sensitive topic. Although, arguably we would think it would be quite easy to define what something is without the need to take the question to the court, then again, reading the Jaffa Cake comparison between a cake and a biscuit, perhaps not.

To us it is obvious a Jaffa Cake is a biscuit and a Snowball is a cake. Apparently it still remains a hotly debated topic amongst those that like to engage in small talk. Admittedly, it would be difficult from an outsider’s perspective to determine whether or not Subway were feeding us bread. If not bread, then what? Are we eating sandwiches or cakes for our lunch?… we wonder if they will have to change their script when making our subs to “what kind of cake would you like?”. And will we now feel just as guilty after a Subway as we do after a McDonalds? … Probably not.

This is a ruling in Ireland under different tax regime, but it remains to be seen if the question of VAT with regards to Subway will come before the English courts also.


-De Voil Indirect Tax Intelligence (Archive) > 2014 > Issue 218, July > Articles > VAT’s just the way it is! – De Voil Indirect Tax Intelligence, 218 (35)


– Pensions World (Archive) > 2014 Volume 43 > Issue 12, December > Articles > Taking the biscuit – Pensions World, December 2014, 14


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