Forgive the pun, but the VAT treatment of food items are a hot potato at the moment, and businesses selling food should use this opportunity to consider their own VAT treatment. However, businesses in this sector also need to be aware that HM Revenue & Customs (HMRC) is to launch a campaign later this summer targeting taxpayers who are breaking VAT rules. The department is currently seeking opinions on its plans for an initiative to crack down on individuals and businesses who are trading above the VAT threshold but who have not registered for VAT.
So what is the opportunity? Well, as I am sure you are aware, the UK has a zero rate for the supply of certain foods, and those that do not qualify for the zero rate are, by default, subject to VAT at the standard rate.
Having said that VAT is a European Tax and therefore European cases can be of interest in the UK. One recent ECJ case concerned the supply of a cooked sausage as a take-away item (much in the same way as hot-dogs and burgers in the UK) which was considered not to be in the course of a supply of catering, as there was a very limited ‘service’ associated with the supply. The customer essentially wanted, and received, a cooked food item with little preparatory services attached, which the Court considered should be subject to the reduced rate in Germany; thus falling short of a catered supply, which would be subject to the standard rate in Germany.
Additionally, there has been a UK case where delivered food was considered to be a mixed supply of goods. Some items which are delivered hot, so that they could be consumed hot were ruled as subject to VAT at the standard rate; other items delivered hot only due to them being freshly prepared, but not otherwise delivered so that they could be consumed whilst still hot were ruled as zero-rated. Therefore a hot take away or delivered meal, intended to be consumed hot, will be subject to VAT, whereas associated accompaniments, such as naan breads, salads, spring rolls etc. would not be subject to VAT.
Businesses should use this opportunity to check that VAT is not being applied to take away foods which can qualify for the zero rate, such as: -
- Cold sandwiches
- Biscuits (as long as they are not covered in chocolate)
- Frozen meals
Essentially the more you do to food in preparing it for consumption, the more likely that VAT will be due.
All very well if you are VAT registered. If not, on our second point, make sure that you monitor carefully your turnover to ensure that you register for VAT at the correct time. The current registration limit is £73,000 and previous limits can be found on HMRC’s website. Failing to register can result in a backdated registration with VAT being due on historic takings as well as a penalty being levied by HMRC.
If you would like more advice on any of these issues, then get in touch with Karen Mulcahy, firstname.lastname@example.org or call on 01962 735350.