Are your cold food supplies zero rated?

Businesses selling cold food, sandwiches and snacks from vending machines, kiosks and other outlets may now be able to reclaim VAT following a recent VAT tribunal ruling.

As the catering industry struggles like the rest of the economy, an opportunity to reclaim output tax previously charged may help those VAT registered traders and is also a way of maintaining margins on your menu items without affecting your customers.

HMRC typically considers that supplies of food for consumption in areas where seating is available are standard rated supplies because they constitute catering and are, therefore, excluded from the zero rate. In the case of Compass Contract Services UK Ltd, the Court of Appeal clarified the term “on the premises on which it is supplied” (part of the definition of catering) finding that Compass’ outlets were separate from the premises they occupied.

The recent case of Made To Order Ltd confirms that the precise layout of premises and consumer behaviour must be considered to establish the VAT treatment of such supplies. In this case the company ran three Subway franchise outlets within the food courts of three shopping centres. A customer would buy cold food from the company’s outlet and typically consume it in a communal seating area. HMRC argued that the supplies were standard rated as cold food provided for consumption on the premises. However, the Tribunal ruled that only the premises of the vendor itself should be considered, not the wider environment where the sale takes place. As such, the food was not consumed “on the premises on which it is supplied” and was therefore zero rated. A significant VAT refund was then claimed by Made To Order Ltd, having confirmed the correct liability of those historical sales.

This principle should extend further. For example, cold food sold from a kiosk or vending machine at an outside event/concert is a zero rated supply even though customers can sit nearby to consume it – the vendor’s premises being the kiosk or vending machine, rather than the entire venue/outside area.

Can you make a claim?

If you are a VAT registered trader, where you have treated supplies of cold food as a standard rated supply, it may be possible to submit a claim to recover this overpaid VAT where cold food is sold from a vending machine or from a kiosk where the vendor does not provide the communal seating (if any) that is available to customers.

This may also be the time to review your product offerings to ensure that you are correctly accounting for VAT between standard rated catering and zero rated food to ensure you remain compliant with the current legislation and not charging VAT unduly. If you have any queries regarding this, then please get in touch with your local Haines Watts, Chartered Accountants contact or call Jason Croke, our VAT specialist, on 0800 328 3827 or via email at jcroke@hwca.com