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Hot take-away food
Customs have clarified their policy on the treatment of hot take-away food in light of recent VAT tribunal decisions. These are minor amendments to policy, and replace the guidance previously published in Business Brief 26/2002.
Most food is zero rated for VAT purposes. But hot take-away food and drink is standard rated, whether sold from a traditional take-away, supermarket or any other outlet. Standard rating applies where the supplier's main intention in heating the food is to enable it to be consumed hot or warm.
Hot food can only be zero rated if the main purpose in heating the food is other than to enable it to be consumed hot or warm. For example, newly baked bread is often warm when sold, but is not normally heated for the purpose of enabling it to be consumed hot or warm.
In some cases, suppliers have stated that they have other reasons for heating food and supplying it hot or warm.
Supplies in such cases may qualify for zero rating, but only where the circumstances, i.e. the nature of the product and the way in which it is stored, displayed, advertised, packaged and supplied, support the contention that the supplier's main purpose is other than to enable the food to be consumed hot. On the basis of tribunal and court findings, Customs consider the following to be relevant indicators:
- Type of outlet: If advertised as a take-away food outlet, supplies of hot food will be standard-rated.
- What happens to the food between the time it is cooked or heated and the time it is handed to the customer: If efforts are made to keep it hot, this may be an indicator for standard rating, whereas if it is left to cool naturally for a period of time this may be an indicator for zero rating.
- Type of packaging used: If food is packaged to retain heat, this would be an indicator for standard rating. However, the reverse does not necessarily apply, since food intended for immediate consumption will often be sold in packaging that is not heat retentive.
- Availability of condiments, napkins and utensils would be an indicator for standard rating.
- The way in which the food is advertised and promoted, including in-store signage and any wording shown on packaging.
- Food hygiene regulations: Customs accept that in some cases food may be kept hot partly for the purpose of complying with food hygiene regulations. However, the requirement to comply with these regulations will often not be an aim in itself for the supplier, but merely a consequence of supplying food for consumption while hot or warm. If this is the case, then the supplies will be standard rated.
- Palatability — If an item is generally accepted to be unpalatable when cold, this would be an indicator for standard rating. However, the reverse does not necessarily apply, the fact that an item remains palatable when cold does not preclude the possibility that it has been heated for the purpose of enabling it to be consumed hot.
TOGC
The transfer of a going concern rules are intended to simplify accounting for VAT when a business changes hands. In Zita Modes Sarl v Administration de l'enregistrement et des domains (C-497/01), the European Court of Justice considered whether the buyer of the business needed to pursue the same type of business as the seller, and also how the rules should operate when only part of a business is transferred. It found that for a transfer to benefit from the special treatment:
- the undertaking (or part) transferred must be capable of carrying on an independent economic activity, rather than being the simple transfer of assets, such as the sale of stock; and
- the buyer does not need to pursue the same type of business as the seller prior to the transfer, but must intend to continue the business transferred rather than liquidating the assets.
Customs' view is that UK legislation is in line with the Zita Modes decision, therefore, no legislative changes will be made in response to it.
