VAT Investigations


HMRC Targeting Restaurant and Take-Away Trade - Catering VAT or Not

HMRC are increasing attention on the restaurant and take-away trade to, amongst other things, raise the tax-take. But traders in that sector, to protect themselves, need carefully to scrutinise any claims made by HMRC for extra standard rated VAT. There are four points to look out for:-

Firstly, HMRC's approach during the initial enquiry or investigation is perceived as increasingly technical and legalistic. That alongside a worry in some quarters about the quality of their work, due to them being asked by government to do more with fewer resources.

Next an HMRC assessment to tax can be particularly damaging to a restaurant business if faced with assertions or calculations from HMRC that are not obviously fully supported by evidence that can be easily tested or independently verified.

Thirdly, the above issues mean that a restaurant business has to be very careful during an HMRC investigation to test if what HMRC claim is the case would really stand up to support any tax assessment at the independent Tax Tribunal.

Lastly, some restaurant trade sales might have been wrongly taxed as standard rated VAT when it should properly be zero-rated. This arises from a 2011 European Court of Justice case, Finanzampt Burgdorf v Manfred Bog, case C-497/09 on the correct VAT status of hot take-away food. The Court decided that freshly prepared hot snacks like hot dogs, chips or popcorn, sold at places such as stalls, mobile snack bars or cinema foyers were, under VAT law, sales of goods (food) if any service part (catering) was not predominant. The Court also decided that where standard meals were just delivered to a home without any extra service then that might be classed as food, not catering services.

HMRC have set out their view in Revenue & Customs Brief 19/11. They say the case has no impact on the UK law in VAT Act 1994, see schedule 8 zero-rating, group 1 food, and that the zero-rating of food and standard rating of catered or hot food is a special provision under UK law.

Another view is that the UK special provision is just to zero-rate food, or more precisely certain types of food, which European law does allow. But what the European Court ruling shows is that food just cooked or heated up does not automatically become catering. The ruling may mean that, depending on the detailed facts, a restaurant business is due VAT back from HMRC on basic take-aways or home delivered food

Email Eamon for help, advice or more details

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