Some supplies are regarded as taxable for the purposes of UK value added tax (VAT) but are zero rated. Although no VAT is charged on the sale, the supplier still has the right to recover the VAT incurred on purchases and other expenses relating to the sale. Certainty about what items are zero rated is therefore important for the vendor as well as the customer and it is necessary to distinguish between sales that are eligible for zero rating and those that are not.
Food is zero rated for VAT, though there are numerous exceptions to the basic rule. Food when it is sold over the counter in the grocer’s store or in the supermarket is zero rated, but when it is served in the course of catering services these supplies are subject to VAT at the standard rate. For this reason, the distinction between sales of food and supplies of catering is very important in VAT law and the VAT position of the vendor and the customer is improved if the supplies are zero rated as food rather than classified as catering supplies liable to VAT at the standard rate.
Food consumed on the premises
Catering is defined in the VAT law as including food sold for consumption on the premises where it is sold. The premises of a café or restaurant would include the whole area of the restaurant, plus any chairs or tables on the pavement, concourse or similar area by the main premises. Where the retail outlet is in a shopping centre, the premises include the outlet and the chairs and tables placed in designated areas belonging to the outlet or provided for its exclusive use.
Where a retailer is in a shopping centre that has a food court, the question of what is consumption on the premises may be more difficult to answer. HM Revenue and Customs (HMRC) consider that consumption is taking place “on the premises” if it takes place in the retail outlet or the chairs and tables within the food court, if:
The retailer contributes to the provision, upkeep and cleaning of the food court facilities; or The facilities are in a clearly delineated area for the use of customers to consume food they have purchased.
Where the vendor is operating from a stall in a sports stadium, amusement park or exhibition, the premises are defined as the stall itself and any area provided adjacent to the stall for use by customers. In the case of a retail outlet in an office building, the premises are the outlet and any area for consumption around it, such as a dining room or a seating area.
It is important to note that the definition of premises will also include areas of chairs and tables contained in delineated areas that are not immediately adjacent to the retail outlet but are situated nearby and are designed for the use of the customers of the outlet. This would not include those (ever more scarce) areas of chairs and tables for general use which are not the responsibility of the retailer.
Hot take-away food
Where take-away food is bought cold, this supply is covered by the VAT zero rating for food, while hot take-away food is treated for VAT purposes as a catering supply charged at the standard rate. The definition of hot take-away food is not straightforward to apply in practice. HMRC regard supplies of the following as examples of take-away sales falling into the definition of hot take-away food and therefore chargeable to VAT at the standard rate:
Fish and chips, chicken and chips and similar meals; Chinese, Indian or Italian take-away meals or dishes; Baked potatoes with either a hot or cold filling; Hot dogs and hamburgers; Pies, rolls, pasties and similar items; Toasted sandwiches; Cups of tea, coffee and other hot drinks; and Roasted chestnuts.
The notice issued by HMRC distinguishes between food sold specifically for consumption while it is still hot, which is a catering supply, and food that is warm because it is freshly baked but is not intended to be eaten while hot. The latter would be a zero rated sale of food, as would a sale of food that is cold or chilled when purchased.
This distinction was considered by a Tribunal in a situation where toasted bagels were heated so as to give a crisp inner texture, but not with the intention that they would be consumed by customers while they were still warm. The bagels cooled rapidly and were often bought by customers for consumption later. They were held not to have been supplied as hot take-away food.
The same conclusion was reached by a Tribunal considering the VAT treatment of the sale of “ciabatta melts” to take away. Although they were sold while still warm, the reason for keeping them warm was to attain optimum freshness and to provide a pleasant aroma in the shops. They were not necessarily intended to be eaten while still hot.
On the other hand, a Tribunal that considered the VAT status of take-away pizzas found this to be a supply of catering and therefore liable to VAT at the standard rate. After baking, the pizzas were kept hot and were then delivered as soon as possible. They were advertised as piping hot in the company’s marketing literature and it was therefore clear that the intention of the vendor was to sell hot take-away food.
HM Revenue and Customs www.hmrc.gov.uk
HMRC Notice 709/1 Catering and take-away food (February 2007)
“Value Added Tax” by Andrew Needham and Steve Allan, Bloomsbury Professional, 2009