A legal ruling in Europe could pave the way for pubs and restaurants to pay no VAT on hot takeaway food and drink, and reclaim some taxes paid in the past.
The European Court of Justice (ECJ) ruling is a welcome boost for operators, especially given the rise in takeaway coffee sales at pubs in recent years. However, HM Revenue & Customs (HMRC) has cast doubt on whether it applies in the UK - prompting experts to predict legal challenges by operators who want to claim VAT back.
The ECJ was asked by German courts to rule on whether selling hot food and hot drinks sold for “immediate consumption” should be defined as supply of goods, which are usually subject to zero VAT, or catering services, which pay the full VAT level.
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”.
The ruling is not expected to benefit outlets that serve food for eating-in only. The ECJ said the presence of counters - but not tables with chairs - is not enough to change the definition from goods to catering services.
Marc Welby, VAT partner at accountants BDO, said: “Put simply, if the food predominates and services are incidental, the supply remains one of food.”
He added: “Under UK VAT law, hot food for consumption off the premises is treated as catering and, as such, is treated as standard rated.
“The decision throws considerable doubt on whether UK VAT law is valid or correct: supplies of hot take away food – including coffee etc - should be treated as supplies of foodstuffs and not supplies of catering.
“If this is confirmed – either by HMRC accepting the implications of the ECJ’s decision or as a result of litigation in the UK courts - such supplies should be zero-rated.”
However, an HMRC spokeswoman said: “HMRC does not believe that the recent ECJ decision relating to the supplies of certain foodstuffs in Germany has application in the UK. Both supplies of food and supplies made in the course of catering in the UK are treated as supplies of goods.
“However, we will obviously review the findings of the court very carefully and consider whether it has any impact on the UK’s treatment of food.”
Welby issued this advice for retailers:
1) Review your standard-rated hot food/drink supplies to determine which of these may – on the basis of the ECJ’s decision – qualify for zero-rating
2) Consider the merits of submitting a claim for VAT accounted for on such sales over the course of the last four years, addressing the question of whether unjust enrichment could apply
3) Consider whether, going forward, to apply zero-rating to the potentially affected supplies, the implications this would have on pricing and the effective date of any such change
4) Decide on the appropriate communication of changes to customers (and HMRC).
