VAT and zero rating

There are four general categories that are zero-rated: food for human consumption, food for animals, seeds for growing plants for the first two items, and live animals connected with human food. None of the four is zero-rated if it is supplied "in the course of catering" or if it constitutes a supply of any goods in the list of excepted items (ie, ice-creams, confectionery and drinks).

However, there is a second list of items which overrides this list of excepted examples (eg, milk). Confusingly, sandwiches could be either zero-rated food or standard-rated catering. Food eaten on the premises is considered to be the supply of catering. The distinction between the two causes many disputes between businesses and HM Revenue & Customs.

Expert advice The decision on the recent Munch Box case gave some useful indicators as to whether the supply is of food or catering.

It said: "Factors indicating that the appellant was providing catering included: use of the word menu; that the food was supplied on serving platters; the inclusion of paper plates and napkins; and delivery of the food. Contrary factors included: the lack of services by the appellant at the customers' premises; the absence of cutlery, china and condiments; that the food consisted of sandwiches and extras rather than meals; the small number of servings per order; and that the food was supplied mainly for lunchtime meetings rather than catering functions.

"On balance, the factors pointing away from catering far outweighed the factors pointing towards it."

Another recent case, First Taste, dealt with the supply of sandwiches and cold food to offices within multi-occupancy buildings. HM Revenue & Customs had been seeking to impose VAT on the food on the basis of the wider definition of consumption "on the premises". It claimed that "premises" was the whole building. The tribunal said: "We are satisfied that the premises must be limited to the units themselves."

The tribunal also said that it seemed impermissible to latch on to the mere geographical fact that other quite discrete and separate commercial premises happened to be in the same block and for that reason to lump them together as "the premises" within the meaning of standard-rated catering.

As a result, the supply of sandwiches and cold food to be taken out of the units and eaten elsewhere is considered to be the supply of food rather than catering and is to be zero-rated.

Check list If your service fits mainly into the following list it is likely to be zero-rated:

• Food is taken away or delivered.
• You do not supply cutlery, china or condiments.
• You supply sandwiches and ancillaries rather than meals.
• Food is for meetings rather than functions.
• No service is supplied at customers' premises.
• There is a small number of servings per order.

However, if it fits mainly into the following list it is likely to be standard-rated catering:

• Food is eaten on site.
• The word "menu" is used.
• Service is more than just delivery.
• The food is supplied with serving platters, paper plates and napkins.
• Food is supplied above the ambient temperature. (This alone is usually indicative of catering.)

Beware!

There have been many cases involving sandwich suppliers, and this is likely to increase. This is because HM Revenue & Customs obviously looks to raise money, and if it raises an assessment on a sandwich supplier, it is profitable to the Exchequer.

ContactAdrian Houstoun

VAT partner, Kingston Smith

020 7566 4000

ajh@kingstonsmith.co.uk