Hot Takeaway Food…VAT refund opportunities
A recent case in Europe of the sausage seller Manfred Bog could open up the way to:
- Treat hot takeaway food and drink as zero rated for VAT purposes; and
- Reclaim over paid VAT in the past 4 years.
The ECJ was asked by the German courts to rule on whether hot food and hot drinks sold for "immediate consumption" by Manfred Bog, should be defined as a supply of goods or a supply of catering services. In the UK food is mainly zero rated for VAT purposes whereas catering services are subject to VAT at the standard rate of 20%. The ECJ said the 'goods' definition should apply to food bought from snack stalls, mobile snack bars or in cinema foyers - so long as "elements" of supply of service are "not predominant". The definition covers food and meals prepared for immediate consumption by boiling, grilling, roasting, baking "or other means".
A key factor in this case was that the preparation of food was seen by the court as being "essentially limited to basic standard actions ... done not in response to an order from a particular customer but in continuous or regular fashion according to the demand generally foreseeable".
It is expected that HMRC will resist such claims fiercely and they have recently issued a business brief to say that the ruling does not apply to UK Law. However, on the basis that the big fast food operators are already beginning to submit protective VAT repayment claims to HMRC, other businesses should also consider submitting a protective claim in order to protect their positions whilst the legal challenges are taken up. This can take a considerable length of time and as claims are restricted to 4 years on a rolling basis, submitting a claim will mean that any potential VAT refund is secured in the event the legal challenge is ultimately successful.
This ruling from Europe is not expected to benefit outlets that serve food for eating-in only or where they specifically prepare food in response to an order from a particular customer. The ECJ said the presence of counters - but not tables with chairs - are not enough to change the definition from goods to catering services.
The decision throws doubt on whether UK VAT law is valid or correct and that supplies of hot take-away food - including coffee etc - should be treated as supplies of zero-rated foodstuffs and not standard rated supplies of catering.
Please contact Alison Horner if you would like any further advice or information.