The Upper Tier Tribunal's rejection of an appeal by Subway franchisees - concerning the VAT liability of toasted subs and meatball marinara - may now call into question existing case law on the supply of 'hot food' for VAT purposes and reignite the 'pasty tax' debate.

This is the latest in a long line of cases arguing about the purpose of heating food. Subway argued that it was merely complying with health regulations, but the Tribunal ruled that the food was being heated so it could be consumed at a temperature above the ambient air temperature. As a result, the toasted subs and meatball marinara supplied by Subway should be subject to VAT at 20% and not be zero-rated.

The case was first heard by the First-Tier Tribunal in 2010, and was one of about 250 Appeals from Subway franchisees challenging the correct VAT treatment of the supplies of toasted subs and meatballs.

In June, a solicitor at Diss Solicitors, Dipak Jotangia, was optimistic of their chances of winning the appeal on the back of the government's decision not to press ahead with the 'Pasty Tax'. However, this has not come to fruition.

Lorraine Parkin, head of Indirect Tax at Grant Thornton UK LLP said that the Tribunal's verdict appears to call into question a previous judgment of the Court of Appeal in the case of John Pimblett & Sons Ltd.

'That case, delivered 25 years ago, ruled that keeping pies warm after being cooked did not constitute the supply of 'hot food' - as that was not the intention of the supplier - and they could continue to benefit from being zero-rated.

'So the worrying aspect of this case is not just the defeat for Subway, but the fact that Pimblett can no longer stand as good law. This means that, if the Tribunal is correct, VAT will be payable on all food that is kept warm, which could re-ignite the issues over the so-called 'Pasty Tax', which I'm sure the government hoped had gone away.'