You probably already know that if your business is turning over more than £81,000 annually (that’s the current VAT threshold), then you must register for VAT.
What you might not know is that different rules apply for VAT depending on the type of food you’re selling. If a mobile caterer with an annual turnover in excess of £81,000 sells hot food they must pay VAT. The rule also applies to caterers who offer their customers a designated area in which to consume their food.
The only circumstances under which a mobile caterer with a turnover in excess of £81,000 wouldn’t have to pay VAT is if they only sold cold food. However, there is a bit of a grey area. What about food that has been cooked but is served cool or ‘cooling’?
In March a Subway franchise in Yorkshire lost the latest in a string of legal battles to lift VAT requirements for the store. They were arguing their case on the basis that the only food served ‘not cold’ is a meatball marinara – cooked then stored under heating lights.
The court ruled that there wasn’t any legal reason for the rules on food stored under heating lights to change in Subway’s favour. Continually heated food (i.e. food stored under heating lights) has been standard rated for VAT since October 2012 and will remain so for the foreseeable future.
It’s a big issue and the rules seem unlikely to change any time soon considering the recent failure of the Subway franchisee to overturn VAT regulations on food stored under heating lights. But the law is a bit clearer on other things.
The 2012 Budget introduced a proposal to simplify the tax rules about warm food. It instructed that food that wasn’t intended to be sold hot would be zero rated. Taxation on foods like pies, pasties, and croissants that might be sold while in the process of cooling down will depend on your intention during preparation.
In other words, food sold warm only because it happens to be freshly baked should be zero-rated for VAT. But if you intended to sell it warm or hot when you prepared it, it’ll be liable for VAT at 20%. The Subway franchise was keeping food warm prior to sale, which would suggest that the intention there wasn’t to sell the meatball marinara cold.
So for now, work to the rule that if your food is meant to be hot (or warm), it’s VATable at 20%. If it’s cold, or meant to be eaten cold, it should be zero rated. For more information check out our VAT for catering businesses Youtube chat.