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VAT - catering and school meals

Reduced rate

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My heads a bit boggled today (more often than not the case at the moment) 

can anyone tell be if I'm on track with the below? 

A catering company provides meals for functions, parties, weddings etc - they provide additional services such as waiting on, providing cutlery/crockery and the customer doesn't need to do any food prep - the company will benefit from the reduced VAT rate of 5%. 
 

The same company is going to provide school meals, VAT is also chargeable on this at the reduced rate of 5% from tomorrow as they are a profit making organisation. I'm assuming the meals will come ready to serve (something I need to check with client) if heating/further prep is needed by the school would the meals be zero rated? 

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By paul.benny
15th Jul 2020 10:38

I vote zero rated for the school as you appear to be a supplier to a caterer rather than the caterer.

Study VAT709/1 against the precise facts.

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By fawltybasil2575
15th Jul 2020 12:51

@ jonibarnes (OP).

I believe your understanding is incorrect in relation to both aspects of your question.

(1) Functions etc.

The recent regulations re the reduced 5% do NOT apply to Functions etc. away from the trader’s premises.

Please refer to Para 1.1 of VAT 709/1 which states:-

“However, any supplies of food and drink that are supplied as part of a supply of catering services for consumption off-premises remain standard rated”.

(2) School Meals. I would surmise that the client is probably supplying food to the school, which would then prepare that food for consumption by the pupils. In such case, the food (unless in the categories of SR foodstuffs) will be zero-rated. Please refer however to Para 2.1, and onwards, of VAT 709/1, to determine whether the client’s provision of foodstuffs may be considered to be providing “catering” services, in which case the SR of the normal 20% will apply (I would regard this as unlikely).

In neither case will the 5% reduced rate apply.

Basil.

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Replying to fawltybasil2575:
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By jonibarnes
15th Jul 2020 18:07

Thanks basil

The business will be preparing the meals for the school and then delivering them for consumption on premises. At the moment I am assuming that no further prep will be required by the school.

Regarding the functions I read the following in VAT 709/01
2.2.2 Delivered sandwiches and groceries
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, see Food products (VAT Notice 701/14) for further details.

However, if you are supplying the food or drink under a contract, for example to cater for an event, you are making a supply of catering and all your supplies will be standard-rated (unless the catering is supplied on-premises, in which case it will benefit from the temporary reduced rate).

I assumed that the premises didn’t necessarily have to be the traders premises? Could it be the premises on which the function was taking place?

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Replying to jonibarnes:
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By fawltybasil2575
15th Jul 2020 19:33

@ jonibarnes.

The expression “on-premises” means “on one’s own premises” – this link may perhaps assist:-

https://www.businesscompanion.info/en/quick-guides/on-premises-sales

“Off-premises” means the opposite, of course, and is similar to the more well-known “Off-licence”, which refers to sales “off” the premises, as defined here:-

https://www.dictionary.com/browse/off-licence

As a general comment, VAT 709/1 is, in places, not worded especially clearly, and I am thus not surprised that the guidance is not fully understood in all cases.

Basil.

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Replying to fawltybasil2575:
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By jonibarnes
15th Jul 2020 20:40

Thanks Basil, I’m in agreement - It does seem to me a bit unfair, do you have any thoughts on why HMRC haven’t chosen to help these kind of businesses ?

With regards to the school meals the business is providing the meals over the next couple of weeks, whilst the schools can’t have canteen staff on site, due to the Covid rules. Meals will be fully prepared by my client and delivered to the school ready to eat. Which means the same as the functions ? - 20% VAT.

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Replying to jonibarnes:
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By fawltybasil2575
15th Jul 2020 22:12

The preferential treatment provided to businesses in the hospitality sector is founded upon the principle that those businesses almost invariably have material “premises costs”, ie the costs of providing premises for visiting members of the public (premises in most cases being in relatively “high rent/rates” locations, to reflect the high accessibility for those customers).

Hence, for example, pubs/restaurants; hotels/holiday apartments; museums. In that context therefore, the provision of “outside catering” services does not need to be carried out by businesses operating from such “high premises costs” locations (outside catering businesses can of course be operated from various types of “low premises costs” locations).

Basil.

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Replying to fawltybasil2575:
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By jonibarnes
15th Jul 2020 23:11

I wonder if the reduced rates on flat rate scheme is a loophole? I don’t think it’s any good for my client as turnover is above the threshold although with Covid around we could possibly argue it will drop below 150k.

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By fawltybasil2575
16th Jul 2020 11:07

@ jonibarnes (OP).

You raise a very valid point re the FRS. Where all catering supplies are in the 20% (ie “outside catering”) field, the effect of the reduction (from 12.5% to 4.5%) in the Flat Rate (for Caterers) is a potential saving of a minimum of £6,000 (6/12ths of £12,000) from using the FRS in the period 15 July 2020 to 12 January 2021.

This does raise the prospect of the “anti-abuse” aspect of FRS regulations (but this is a separate, and complex, debate in itself). In intending no offence, I am a little concerned at your words “we could possibly argue it will drop below” – from a legal perspective (and in order not to breach PCRT if one is an accountant) one has to form a judgement (ie a “balance probabilities” judgement) as to whether the future taxable supplies will be £150,000 or less, when making an application; and only submit that application if that “balance of probabilities” bar is reached.

My £6,000 figure above is based upon the assumption that the current 4.5% Flat Rate equates broadly to the VAT which would be payable if FRS were not applied; and is thus probably very slightly understated. More importantly, if the actual taxable outputs in the six months exceed £75,000 (in circumstances which were not foreseen on the date of application) then the potential saving from FRS could materially exceed £6,000.

The redoubtable Neil Warren, of this parish, and in an article elsewhere on AWEB very recently, expressed surprise that the Government had elected to provide amended FRS rates for the three trade sectors at issue: one can understand that surprise when considering the potential FRS saving outlined above. HMRC have clearly produced the amended FRS rates in some haste, as the six "July 2020" dates shown, for the three trade sectors at issue, are all wrong (by one day).

It is certainly worth your providing guidance to your client on this "VAT on Caterers"
matter: and indeed all businesses in the Catering field (and their advisors) should give careful consideration to it.

Basil.

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Replying to fawltybasil2575:
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By jonibarnes
16th Jul 2020 18:37

An area to look at, reading it back my wording wasn’t great, I simply meant that turnover could easily drop below the 150k in light of the current situation

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