Getting the classification right for the supply of goods or services is always important when it comes to VAT. Food retailing is one area where the boundaries between standard and zero rated items can give rise to difficulty. For example, is takeaway food supplied by a business ‘hot’? A lot can hinge on getting the answer right, as a recent tax tribunal case shows.
In Pegasus (Manchester) Ltd, a market takeaway outlet sold African and Caribbean dishes, such as rice, wraps and curries. It claimed that food was not supplied hot, and therefore for VAT purposes, should be zero rated. HMRC maintained that the food was hot and should be standard rated. More than £110,000 depended on the one word: ‘hot’.
In VAT law, ‘hot food’ means food which is hot when provided to the customer and
- has been heated for the purposes of enabling it to be consumed hot
- has been heated to order
- has been kept hot after being heated
- is provided to the customer in heat-retentive packaging
- is advertised or marketed in a way indicating that it is supplied hot.
‘Hot’ is defined as being above ‘ambient room temperature’, and ‘kept hot’ has a similarly precise definition. Where food is ‘kept hot’ for health and safety purposes, or a reason other than enabling the consumer to eat it hot, it may be possible not to standard rate the sale.
A great deal of attention was given by the tribunal to what this all meant in the particular circumstances applying here. During preparation, food was first cooked by Pegasus to 99-100°C, then cooled to 19-20°C; kept at ambient air temperature, and finally stored in a bain marie. Ambient air temperature in the market was 28-30°C, with the bain marie maintaining a constant 56°C. The judge considered that the food was raised to ambient temperature after cooling, and that placing in a bain marie meant, as ‘a matter of basic physics’, that it was heated. The retailer lost the case.
VAT is often complex, but regular review of procedures can help your business keep on the right side of the rules. Whether you are a retailer selling food, or perhaps looking to expand into new areas, we can help you assess the VAT implications of your business decision.
This publication has been prepared by Robinson Reed Layton LLP. It is to be treated as a general guide only and is not intended to be a comprehensive statement of the law or represent specific tax advice. No liability is accepted for the opinions it contains, or for any errors or omissions. All rights reserved.