Tea time

The taxpayer business was a teashop that sold teapots, mugs and other items. The terms of the premises’ lease meant the owner could serve only reheated or cold food along with hot and cold drinks.

She decided to join the VAT flat rate scheme in May 2008, choosing the category “retailing not listed elsewhere” (7.5% rate) rather than “catering services including restaurants and takeaways” (12.5%). HMRC claimed the latter rate should apply.

The First-tier Tribunal said lease restrictions should be taken into account by the business when deciding on a category of the flat rate scheme. The taxpayer had to comply with the terms of the lease and subsequent planning requirements.

The “retailing…” rate should apply for the first year of use of the scheme, and then the “catering…” category should be used given that the shop’s turnover in respect of catering had overtaken its retail trade.

The taxpayer’s appeal was allowed in part.

Issue: 4442 / Categories: Tax cases , VAT