Q:
I own a sandwich shop and catering business I would just like some clarrification on the vat. I charge vat on outside catering i charge vat on hot food. If a customer comes into the shop to buy a Cold sandwich i dont charge vat. If a customer rings up and orders a sandwich then comes to collect at the shop is there VAt on this cold sandwich. Also if a customer rings up and orders a cold sandwich and would like it delivered to there work place is there vat on this. I am trying to prepare menu’s which would include delivery and just need some clarification.
Regards
A:
You need to have a look at VAT Notice 709/1: Catering and Take-Away Food here: http://tinyurl.com/yfglxdb on the HMRC website. It’s not a very long notice and quite easy to read and you should find the information you need to sort your pricing out. The notice covers most situations about the VAT liability of take away food and catering issues, eg paragraph 2.2.2 deals with delivered sandwiches.
Marie
Q:
I have read this article a dozen times and it still does not clarify. for example if a person rings up and orders a sandwich that is a verbal contract and i should add vat, if the same person rings up and orders a sandwich they have made a verbal contract but comes to the premesis to collect the sandwich should they pay vat on that sandwich because that is a verbal contract even though the sandwiches in the shop are zero rated will they pay vat.
A:
I know that the leaflet doesn’t help very much but you have to start somewhere! The purpose of the forums isn’t to give you specific advice about whether or not to charge VAT on your sales – the forums are for general guidance only and to help you find the answer yourself. At the end of the day, it’s your business and you have to decide whether or not your supplies are liable to VAT. But I know that VAT on takeaway food sales has always been a very difficult subject as the legislation is somewhat confusing. Every single take away/catering food business I have advised over the years has slightly different issues and I wouldn’t be doing you any favours if I oversimplified things.
Unfortunately the VAT leaflets don’t always help and to make things more difficult, there have been several VAT Tribunal cases about the VAT liability of food over the years with what often seem to be contradictory rulings. There is some more detailed information in the HMRC internal manuals here http://www.hmrc.gov.uk/manuals/vfoodmanual/VFOOD4000.htm which you should find to be more useful than the leaflet.
You’ve asked a very specific point about what constitutes a verbal contract and when you should charge VAT when a customer rings up to make a specific order. There isn’t any specific guidance in the leaflet about what constitutues a contract or agreement if a customer rings up and asks for a particular sandwich to be prepared for collection or delivery, so we have to look at other factors.
As you know, you have to charge VAT on the sale of cold food in certain circumstances, including if it is supplied in the course of catering. “Catering” has been defined as the provision of food at a particular set of premises and/or with some element of service, eg the provision of waiters etc. The sale of cold take away food that is zero rated in its own right – (for example sandwiches, where as confectionary is always standard rated) is zero rated as long as it is for consumption elsewhere where there is no element of catering. If I ring my local sandwich shop and ask them to prepare a specific type of sandwich or sandwiches which I collect and consume elsewhere, then they shouldn’t charge VAT.
As you say, though, the leaflet is less helpful where you deliver to a customer at their premises. The leaflet isn’t particularly helpful, it says: “If you take sandwiches, or other items of food and drink, to buildings in order to sell them, but have no contract or agreement to do so, this is not a supply in the course of catering and you can zero-rate any item that is eligible ” (VAT Notice 709/1 paragraph 2.2.2). But it doesn’t explain what is meant by “contract or agreement” – does that mean a written contract or a simple verbal agreement?
This is exactly the sort of issue that has been considered in the VAT Tribunals – see the HMRC internal guidance here http://www.hmrc.gov.uk/manuals/vfoodmanual/VFOOD4600.htm which explains the rulings given in Zeldadine Limited and E & G Catering Services Ltd.
You’ll see at the end of the page in the HMRC guidance there is the following advice to VAT Officers to help them decide whether or not there is a supply in the course of catering:
“Where a trader’s business is similar to the above situation (selling to individuals from baskets, a mobile van or mobile trolley), and sales are made on what might be called a casual and roving basis, you should apply the following criteria:
* does the trader have any verbal or written agreement with any of the occupiers, over and above the permission of reception staff, to enter the premises, and
* is the trader bound by any contractual agreement to supply the occupants?
If the answer is no to both of these questions, it is likely that the situation is similar to the Zeldaline case and it is not one of catering.”
In other words, if your agreement to deliver to your customers falls within either of the above criteria, then HMRC would expect you to charge VAT. I suspect that in your circumstances, HMRC would take the view that your verbal agreement to deliver specific items would put you into the first category, in which case you should charge VAT.
I hope this helps you decide whether or not to charge VAT. If you’re still unsure then you might prefer to play it safe and charge VAT on any delivered orders. The downside to that is that adding VAT might put you at a competitive disadvantage to other local suppliers if they don’t charge VAT, but at least you wouldn’t be worrying about whether or not HMRC could come along and assess you for underdeclared VAT at a later date. Alternatively, if you think that the supplies should be zero rated but you want certainty, you could always write to the VAT office for a formal ruling explaining why you think that zero rating should apply to the supplies in question.
I wouldn’t normally go into this level of detail on the forum but the subject of take away food is difficult and I know that a lot of small food businesses struggle with VAT issues all the time because the legislation is difficult and it’s easy to fall foul of the rules.
I hope this helps you to decide whether or not to charge VAT, but if you need any further help, I would of course be happy to provide tailored consultancy advice through my consultancy business, VAT Exchange Limited.
Marie