VAT on food

VAT on food for human consumption is zero rated for the purposes of VAT. Problems with the VAT liability arise when items that are defined as confectionery do not qualify for zero rating. Examples of what qualify as food include items such as:

Meat, fish, fruit, vegetables, herbs;
Unprocessed nuts, pulses, cereals;
Cheese, yoghurt, butter;
Flour, baking ingredients; and
Cakes, and some biscuits (not chocolate covered).

A product is ‘food of a kind used for human consumption’ if:

the average person, knowing what it is and how it’s used, would consider it to be food or drink
it’s fit for human consumption,

and includes products:

eaten as part of a meal, or as a snack
like flour, which, although not eaten by themselves, are recognised food ingredients.

Standard rated VAT on food:

VAT on food items is specificall standard rated on goods such as:

Powders for making strawberry and banana milkshakes (but not chocolate which is zero rated)
Frozen yoghurt (to be eaten frozen rather than thawed)
Roasted or salted nuts
Fruit or vegetable juice or concentrates
Chocolate biscuits. Listen to Dan Needle on BBC sounds about the difference between a Jaffa cake and a biscuit.
Ice-cream, ice lollies, sorbet
Cereal bars (but not all flapjacks some of which are zero rated)
Food supplied in the course of catering

Further complexity

Often difficuly arises with products in the following categories:

savoury snacks; and
sports nutrition products.

These products are in many cases difficult to categorise between the more usual standard rated and zero rated products. Some items are a result of significant innovation in these categories of the food industry, creating products not envisaged when the VAT legislation was introduced.

Dietary supplements of a kind not normally purchased and used as food are standard-rated. This includes:

vitamin and mineral supplements of all kinds
royal jelly products (but not regular food products such as honey which simply have royal jelly added to them)
tablets, pills and capsules containing, for example, wheatgerm, iron, calcium, fibre, yeast, garlic, ginseng, pollen, propolis, seaweed, evening primrose, guarana or other similar herbal preparations, and powders of these other than garlic and yeast.

VAT on food supplied in the course of catering

Catering in its ordinary meaning includes the supply of prepared food. VAT would be liable at the standard rate when it includes a significant element of service such as:

supplies made in restaurants, cafés, canteens and similar establishments (except VAT on food that constitutes a cold takeaway would normally be zero rated)
third party supplies of catering for events and functions, such as wedding receptions, parties or conferences
a supply of cooking or preparation of food provided to a customer at the customer’s home, for example for a dinner party
delivery of cooked ready-to-eat food or meals (with or without crockery or cutlery).

Examples of supplies of food that are not supplies made in the course of catering include:

retail supplies of cold takeaway food
retail supplies of groceries
supplies of food that require significant further preparation by the customer.

Certain supplies of education, training and research are exempt from VAT. Where an educational institution provides exempt education to its own pupils and students, then the supply of catering they make is also exempt.

Care provided in a hospital or other statutorily registered institution is exempt from VAT. This exemption includes the supply by such institutions of prepared food and drink directly to their patients in the course of care.

VAT on take away food

VAT on food for consumption off the premises which is “hot” when supplied is standard rated. The tests for “hot” food is when the food is hot at the time it is provided to the customer one or more of the following five tests are satisfied, it’s:

been heated for the purposes of enabling it to be consumed hot
been heated to order
been kept hot after being heated
provided to a customer in packaging that retains heat (whether or not the packaging was primarily designed for that purpose) or in any other packaging that is specifically designed for hot food
advertised or marketed in a way that indicates that it’s supplied hot.

Premises

For the purposes of Group 1 of Schedule 8 of the VAT Act, ‘premises’ are the areas occupied by the food retailer or, any area set aside for the consumption of food by the food retailers’ customers, whether or not the area may also be used by the customers of other food retailers.

The definition of premises for the purposes of VAT on food does not include areas with tables and chairs provided for general use by members of the public who are not customers of one or more food retailer. Examples include:

benches in shopping centres designed as general seating for customers to rest or wait
tables and chairs in a public picnic area — for example, picnic benches by a motorway service station where people can eat sandwiches that they have prepared themselves (as well as ones that have been bought from the service station), and where the area is not regularly cleaned and cleared by the retailer or landlord
seating areas in airport lounges and railway stations where customers wait for their planes and trains

Confectionery

For a number of years now we have had litigation on snack products that are naturally sweet as a result of containing fruit, and yet these have been found to be standard rated as they sit alongside other confectionery which is compulsorily standard rated. Confectionery is described as being:

‘an item of sweetened prepared food, other than cakes and non-chocolate biscuits, which is normally eaten with the fingers’.

VAT on savoury snacks

VAT on food can depend on how savoury snacks are made and the product ingredients.

HMRC’s View

HMRC continue to be very litigious in this area and have had some degree of success against the backdrop of the existing legislation in relation to VAT on food.

Current Topical Issues with VAT and Food

The following products have been litigated in recent years, giving an idea of areas being challenged:

Walkers Sensations Poppadom Crisps – are they potato crisps (standard rated)?

“Mega marshmallows” – are they confectionery? The Court of Appeal was unable to decide.

Flapjacks with chocolate coating/other ingredients – are they flapjacks?

Nak’d and Organix Bars – are they confectionery? The Tribunal decision in the case of Wm Morrison Supermarkets explained the answer to that question.

Contact Solve VAT

Our VAT experts are available to discuss VAT on food or any other VAT services on 0161 883 2120.

VAT on food – complex liability issues explained