Define ‘Bread’

The other week, the Supreme Court rejected an argument put forward by Subway that their rolls are bread and are therefore zero rated for VAT purposes. The court ruled that the rolls are not, in fact, bread.

As the Guardian reports:

The ruling followed an appeal by Bookfinders Ltd, Subway’s Irish franchisee. The company had argued that the bread used in Subway sandwiches counted as a staple food and was consequently exempt from VAT.

However, as the court pointed out, Ireland’s Value-Added Tax Act of 1972 draws a distinction between staple foods – bread, tea, coffee, cocoa, milk and “preparations or extracts of meat or eggs” – and “more discretionary indulgences” such as ice-cream, chocolate, pastries, crisps, popcorn and roasted nuts.

The clincher was the act’s strict provision that the amount of sugar in bread “shall not exceed 2% of the weight of flour included in the dough”.

Subway’s bread, however, contains five times as much sugar. Or, as the supreme court put it: “In this case, there is no dispute that the bread supplied by Subway in its heated sandwiches has a sugar content of 10% of the weight of the flour included in the dough.”

The appeal arose from a claim by Bookfinder Ltd that there were owed a refund from January/February 2004 to November/December 2005, when they paid VAT at a composite rate of 9.2%. They argued that they should instead have been subjected to 0% VAT. But Mr Justice O’Donnell was not persuaded and the appeal was dismissed.

It’s one of those things that can come across as yet another bit of bureaucratic red-tape, doesn’t it? And yet, what if there was no definition of what bread is? Well, for starters, someone could (and did!) shove a load of sugar in and call the result bread. All these rules and regulations have a purpose, and a lot of time and effort went into creating them. As the saying goes “Don’t ever take a fence down until you know the reason why it was put up”.

If you can understand the reason for a thing, then you can consider it’s removal.

It’s worth keeping in mind the next time you come across some process, procedure, rule or regulation that seems baroque.