Confused about VAT on your sales? You are not the only one. The rules surrounding food and catering can be tortuous, especially if you have only registered recently and therefore new to the regime. Here at Central Business Services we can help you by going through the basic rules and explaining the exceptions. Applying the wrong rate of VAT can mean trouble from HMRC.
If food and drink are consumed in an establishment the basic principle is that this is a standard rated supply, so subject to VAT at 20%. Cold food sold on a takeaway basis qualifies for zero-rating in many cases. Note that this is cold food to be consumed away from the premises. However, there are exceptions where VAT is still payable, e.g. sales of chocolate bars, crisps and fizzy drinks are all standard-rated.
There have been numerous Tribunal cases over disagreements with HMRC about the definition of “Premises”. HMRC used to take the view that a whole site would be classed as Premises, so the whole of a shopping centre could be classified as “Premises”. It is now accepted that the Premises only include the specific area surrounding an establishment, such as tables and chairs outside a café or a shared seating area inside a shopping centre, where customers have of a range of catering outlets to choose from.
The legislation on VAT is quite lengthy. When the guidance refers to takeaway food it means food which is taken away from the premises to eat. A sandwich taken away will be zero rated but if the customer eats it on the “Premises” it becomes standard rated (20%).
A catering business that provides both sit in and takeaway food will need to recognise the 20% VAT difference on most cold food items for pricing purposes. The customer should also be made aware of the difference in VAT, with the prices on the items being clearly displayed.
Most of the bigger chains price both eat in and takeaway the same but enter the sale differently on their till depending on whether the customer says, “eat in” or “take away”. Getting this right can make a big difference to profit.
Hot takeaway food is always standard rated.
Once you have understood the difference between standard and zero-rated supplies, there are a number of exceptions to the zero-rating group. To confuse matters, there are then exceptions to the exceptions, and then further exceptions to those exceptions! To make things a little easier here is a list of key items that will always be standard-rated when sold on a takeaway basis:
· Ice cream and similar products but excluding frozen yogurt that’s designed to be thawed before being eaten.
· Confectionary apart from cakes and some biscuits. A biscuit partly or wholly covered in chocolate is standard-rated. A cake partly or wholly covered in chocolate is zero rated. This prompted a court battle over Jaffa cakes which HMRC argued were biscuits and subject to standard VAT. McVities were successful in proving that Jaffa Cakes are cakes and there VAT should not be charged.
· Alcoholic beverages.
· Other beverages including, carbonated drinks such as lemonade and coke, mixers such as tonics and sodas, as well as fruit cordials, squash and bottled water.
· Hot drinks.
VAT must be charged on all items supplied for consumption on the premises, and for hot food and drink supplied for consumption off the premises.
If you have any questions regarding this, please do not hesitate to get in touch with us on (01509) 816150 or through the contact form below.