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TAX NEWS: Revenue advises on catering after Compass victory. By Rebecca Benneyworth

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29th Aug 2006
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HMRC has provided guidance on the liability of supplies of catering to VAT following the judgement of the Court of Appeal in the case of Compass Contract Services UK Limited, which HMRC has decided not to appeal to the House of Lords.

The problem area is the definition of catering for the purposes of VAT. All food and drink supplied in the course of catering is standard rated. Catering is defined as including supplies of food or drink for consumption on the premises on which they are supplied. Compass supplied food and drink from retail units situated within the BBC Television Centre. Compass did not treat these supplies as catering, on the basis that consumption took place elsewhere within the centre, and not in the retail units. Thus the supply was not made where it was intended to be consumed, and cold food supplied was zero rated. The tribunal agreed. HMRC's view is that all supplies from these premises should be standard rated catering.

HMRC appealed directly to the Court of Appeal on two points. The definition of catering per se, and the interpretation of "premises". The Court of Appeal has considered this further, and provided additional reasoning. First, in considering whether a supply is one of catering, no single factor can determine the decision, and all factors have to be considered together. The interpretation of premises was then considered, and the Court found that the premises from which the supplies were made were in fact the retail outlets within the BBC site and not the Television Centre as a whole.

This contradicts HMRC's previous policy on the definition of premises set out in VAT Notice 709/1, which states:

"Premises fall within two categories, those to which the public has unrestricted access and those to which access is only allowed with permission of some sort.

Restricted access sites, such as secure office buildings, sports stadium, amusement parks and cinemas. Here, the premises are the whole of the building or site. This means that all supplies of food and drink will be standard-rated even if it is taken away from the point of sale.

Unrestricted access sites, such as restaurants, shopping malls, hospitals, bus stations and railway stations (including those with platform ticket barriers). Here, the premises are confined to the outlet itself plus any associated facilities, such as table and chairs outside a caf©, whether or not you provide these facilities."

The BBC centre is a restricted access site, but the Court of Appeal included the following in the judgement:

"The geographical situation and the physical extent of the retail units under the control of Compass and to which customers have access are sufficiently identified to be regarded or recognisable as separate premises at which supplies of food are made to Compass customers within the meaning of Note (3)(a). No food is consumed in the Compass units themselves. That is where the supplies are made. It follows that the sandwiches supplied by Compass are not supplied for the purposes of being consumed on the premises on which they are supplied."

HMRC have therefore revised their guidance on the interpretation of premises to amend the statement regarding restricted access premises. Unless seating areas are provided adjacent to the retail outlet (either by the retailer or the landlord), supplies of cold food by external retail suppliers at restricted access premises will now be regarded as zero rated.

A three year reclaim may be appropriate for some retailers affected by this judgement. Any apportionments of supplies will need to be explained and justified as fair and reasonable.

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