Large numbers of catering companies could be owed "significant" refunds on overpaid VAT after a court ruled that HM Revenue and Customs' stance on takeaway food was outdated.
The court case, involving a well known high street takeaway brand, overturns HMRC's long-held view that the presence of a seating area automatically means that cold food cannot qualify for VAT free treatment.
The decision will apply to those outlets whose customers are able to consume food in an adjacent seating area over which the outlet itself has no control - for example, in food courts within shopping centres.
It will also have implications for caterers in large office buildings where staff from different businesses share a refectory or canteen area and for vending machine operators, which, if there was even a single table and chair in the vicinity of a machine, have been legally recognised as caterers.
Geraint Lewis, VAT partner at accountancy firm Mazars, who advised the company, said: "This is a very important decision, which demonstrates that HMRC's interpretation of the phrase ‘takeaway food' is wholly unrealistic and simply out of touch with modern eating habits.
"We are already working on claims in this area measuring in the hundreds of thousands, and many catering and vending companies will be eligible for very significant refunds."
However, Lewis warned that the deadline for historic VAT claims is now only a few weeks away, at 31 March.
"It's vital that businesses deal with this issue as quickly as possible, or risk losing any ability to claim VAT overpaid before 1996," he said.
In 2006, Compass Group successfully challenged a ruling that sandwiches at its BBC contract should be liable for VAT.
By Daniel Thomas
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