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U-turn due on 'pasty tax' proposals
The Government is to announce U-turns on controversial Budget proposals dubbed the pasty tax and the caravan tax.
Plans to levy VAT at 20% on all hot food had been criticised as taxing lunchtime snacks such as pasties.
But under revised proposals, VAT is expected only to be charged on food intended to be served hot - omitting food such as pasties which is cooked hot but left to cool in cabinets before being served.
Proposals to charge full VAT on static caravans are also expected to be watered down, with the tax being levied at just 5%.
Consultations ended on May 18 and Treasury sources said the change was about implementation and aimed at closing the gaps in the VAT system dealing with unfair anomalies.
A Treasury source said: "We rightly consulted, listened and are glad we have a solution that is fair."
A spokesman for the Treasury said: "The Budget announced a consultation on a change to VAT on hot takeaway food ... After extensive engagement we have improved the policy, addressing practical concerns, ensuring that the new regime could be as simple as possible to apply.
"We have addressed these in a way that allows us to remove the inconsistent VAT treatment, while not imposing any additional requirement on businesses to test the temperature of their products."
Under the new proposals, VAT will be charged on all food provided hot for the purposes of allowing it to be eaten hot, or food which is cooked hot to order. VAT will also apply where food is kept hot in hot cabinets, hot plates, heat lamps etc or where heat is applied in order to slow the cooling process.
It will also apply where food is provided in heat-retaining packaging or other packaging specifically designed for hot food - an example would be foil-lined takeaway packaging for Indian and Chinese takeaways. Food advertised as hot is also subject to VAT.