Office-based workers could soon be offered cheaper sandwiches in workplace restaurants after the Court of Appeal ruled they should not be subject to VAT.
In a case brought by Compass Group in relation to its outlets at the BBC, the court ruled that sandwiches sold by contract caterers should be exempt from the 17.5% tax.
The decision could cost the taxman millions of pounds a year.
Lord Justice Mummery said: “The individual customers are simply buying and being supplied with sandwiches in the same way as if they were buying them and being supplied with them zero-rated from another available retail outlet.”
An earlier tribunal had ruled that VAT was applicable because the sandwiches were made “in the course of catering”, rather than as a retail transaction.
But the judge said: “It makes little sense that they should be made liable to pay VAT in the one case, but not in the other. Compass is no more making supplies of sandwiches ‘in the course of catering’ than the supermarket chain with a section set aside in its store for the sale of sandwiches.”