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Steve Chamberlain

Would you like VAT with your sausage sir?

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The European Court of Justice (ECJ) was recently asked by German courts in “Manfred Bog and others” to decide whether hot food and drinks should be defined as a ‘supply of goods’ and therefore subject to a reduced VAT rate rather than a ‘supply of services’ which would have been standard rated.

Mr Manfred Bog supplied sausage and chips from mobile vans. The Court decided that being able to eat protected from the rain by a folding roof, and having access to a bin wasn’t much of a service, so Mr Bog was supplying a good. In a linked case, a German company called CinemaxX sold popcorn and tortilla chips in a cinema foyer (I have no idea whether the company’s name is indicative of the films on offer) and was again deemed to be providing a good, not a service.

A further linked case involved Herr Lohmeyer, who sold a slightly wider range of goods than Herr Bog (eg one could have curry sauce on one’s sausage and chips.) More importantly, according to the German Authorities, his stalls had counters that customers could eat at, standing up.

Summing up, the Court decided that food served with minimal facilities was a supply of goods, not services. These linked German cases have caused quite a lot of excitement in the UK.

Some have suggested that this ruling means that the UK take-aways who provide: freshly made pizza slices, hot dogs and hot drinks as well as counters supplying food in cinemas should claim for VAT previously charged. Some national accountancy practices have gone as far as to carry out marketing campaigns to encourage this. However, HMRC have released a brief (ref: 19/11) stating that the ECJ ruling has no impact for the UK treatment for take-away hot food and all such claims will fail.

So who is right?

HMRC point out that UK VAT law differs (“derogates”) from EU VAT law when it comes to our zero-rates. UK Law permits zero-rating for basic foods, except when they are supplied in the course of catering. While catering implies a service, not a good, UK Law specifically deems takeaway food heated for the purpose of eating it hot, and supplied still hot, as catering.

In the UK, food is either 20% or 0%- the reduced rates implemented by the Germans are optional, ie the UK isn’t obliged to allow a reduced rate of VAT on food or catering.

One odd consequence of UK law is that hot takeaway food CAN be zero-rated, so long as it isn’t heated just so that you can eat it hot. A baker serving a pie fresh from the baking oven; or a supermarket selling a freshly cooked chicken can zero-rate so long as they can show it is a grocery. It may be hot; it may have an appetizing aroma, but it isn’t cooked so you can eat it hot, merely fresh. In practice HMRC apply zero-rating to food sold in supermarkets if it is not held out for sale with the suggestion that it is intended to be eaten hot and that consumption of heated food is not facilitated by including utensils such as cutlery or providing heat retaining packaging. It is claimed that the foil bags that hot counter food stuffs are regularly presented in are to protect customers’ clothing from grease rather than retaining heat.

Dominos Pizza Group Ltd once argued that its pizzas should be zero-rated on delivery, but failed on the basis that it made a marketing feature of its delivery bags having a built-in heating element which “ensures that every pizza arrives at its destination piping-hot”.

So there is a degree of inconsistency between the VAT treatment applied by say, a supermarket, and a nearby fast food outlet selling very similar products in very similar packaging. It may be tempting for one of the larger operators to challenge this inconsistency through what is likely to be an expensive and lengthy legal process, if it thinks it can overcome any question about unjust enrichment if the trader is to claim a VAT refund but the customer bore the cost.

However, the EU would very much like the UK to lose its cherished zero-rates, and I daresay the UK Exchequer might reluctantly accept any increase in VAT receipts. It would be an unfortunate consequence if the playing field is levelled between the supermarket and the takeaway by say, applying 20% VAT to all hot chickens sold.

But where the German cases may yet impact is the definition of catering generally. In the case of Detmold (ECJ Case C-502/09), a German partnership who ran a butchers shops but also provided catering for parties, the ECJ held that their catering services should be subject to standard rated VAT as was deemed to be a supply of service due to the skill and creativity of the food preparation and the provision of ‘additional elements of supply of services to facilitate consumption such as table linen, cutlery and crockery and the subsequent cleaning of them. In the case of Deliverance Limited v HMRC (UKUT appeal number FTC/25/2010), the appellant claimed that some food items that arrived hot at customers’ premises did so by accident and it was not the vendors intention for it to be consumed hot. They also felt that if food did arrive hot, it demonstrated that it was freshly prepared and therefore advantageous to the company but, the packaging of said food was not designed for heat retention purposes. The court found in favour of Deliverance Limited.

In summary the revolution of UK VAT treatment and large refund opportunities for hot food traders claimed by some of my peers does not, at this stage look imminent. However, if you take this opportunity with a ‘pinch of salt’ and believe a retrospective claim will serve to protect your position or, you would like to investigate areas in which suppliers of hot, or delivered, food may be able to reduce VAT on their offerings please contact me on 01865 261100.

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