HM Revenue & Customs (HMRC) are considering issuing letters to the accountants of restaurant and takeaway businesses across the country, emphasising the importance of correctly applying VAT on hot food.
This move comes amidst potential confusion amongst business owners regarding the varying VAT rates applicable to different types of food items.
HMRC has always considered that businesses in the food industry present a risk as far as VAT is concerned.
Understanding VAT on hot and cold takeaway food
The crux of the matter lies in distinguishing between hot and cold takeaway food items and their corresponding VAT rates.
Catering is always subject to VAT at the 20 per cent ‘Standard Rate’. Catering includes all food to be eaten on a business’s premises, but also any food which is sold “Hot” as a takeaway.
On the other hand, certain cold takeaway foods can enjoy a zero-rated VAT status.
However, for these items to be zero-rated, they must not be advertised as hot products and should not be kept warm post-cooking.
It could also be argued that HMRC has a certain prejudice against restaurant and takeaway businesses.
They sometimes appear to consider that staff may not be recording sales correctly (particularly where there is a mixture of cold and hot takeaway food which could confuse the way that sales or VAT should be recorded).
On this basis, there have been many high-profile VAT cases recently involving sandwich franchises where HMRC has completed their own perhaps overly complex calculations to determine the element of takeaway sales they think have been made “Hot” which they then compare to the sales that have been recorded (by the relatively junior members of staff).
The VAT and Duties Committee has been told that HMRC will be contacting Card Payment Providers and Online Intermediaries (such as Deliveroo) to compare the takings that those businesses know about with the VAT that has been accounted for by the restaurant/takeaway business.
HMRC has said that they may then write to accountants to encourage them to ensure that clients are reviewing their VAT returns to determine whether they consider there are any errors in the way that “Hot Food” has been treated.
It is not known yet how many of these letters will be sent. It is also reported that HMRC are considering raiding takeaway businesses that they suspect of using software which suppresses the takings recorded in tills.
Seek professional advice
Navigating the VAT landscape can be challenging, especially with the intricacies involved in the food and beverage sector.
Where a business is selling “Hot” food whilst making the argument that VAT need not be accounted for, or where a business is indeed concerned that how sales are recorded could present risk, it would be prudent to have a discussion with our expert VAT team for bespoke advice.