Clement Keys
Chartered Accountants

A variety of takeaway businesses could be in line for significant VAT refunds if decisions in the European Court of Justice (ECJ) and the UK’s Upper Tax Tribunal lead to a change in the way they account for VAT on certain hot foods, say chartered accountants Clement Keys.

The ECJ case in particular challenges a fundamental concept of UK VAT law – that the sale of hot takeaway food is always a supply of catering and is therefore subject to VAT at the standard rate – and could have a major impact.
 
The sale of hot sausages and chips from a mobile van and the sale of popcorn and tortilla chips in cinemas were held by the European Court of Justice to be pre-cooked/heated and kept warm, rather than being freshly cooked to order. As such, it determined that where the retailer does little more than heat the food, and does not provide facilities similar to those found in a café or restaurant, this does not constitute a supply of catering but a supply of goods.
 
“Under UK rules it is likely that popcorn would remain standard rated, but sausages and tortilla chips are ordinarily zero rated as foodstuffs, so the decision in the ECJ case could lead to significant refunds for takeaway businesses which have accounted for VAT incorrectly on these sales,” says Director of VAT Services Steven Simmonds.
 
HM Revenue & Customs (HMRC) is likely to reject any claims for refunds made by UK VAT registered businesses and may be prepared to defend their position all the way to the Court of Appeal, so the prospect of an early VAT refund is unlikely just yet. 
 
However, the cases represent a significant challenge to HMRC’s traditional view and Clement Keys is advising takeaway businesses to talk to their professional advisors sooner rather than later, because any claims for VAT refunds which become permissible will be capped to a maximum of four years.