Over the last few years, VAT on food has enjoyed more than its 15 minutes of fame in the tax spotlight. But with Making Tax Digital (MTD), it is something that cafes and sandwich bars would do well to look at again.
Food or drink items which are sold hot at the point of sale for immediate consumption are classified as standard rated. This is applicable whether they are consumed on the premises or taken away. Cold food items which are taken away, however, are classed as zero-rated (provided it is not of a type which is always standard-rated, such as crisps and sweets), but they will become standard rated if consumed on the premises.
Can you see the complication?
The VAT rate in a lot of cases depends on where your customer will be consuming the food or drink, and this leaves the tax treatment solely in the hands of your staff at the point of sale.
Are they asking the customer if they are eating in or taking away?
What could be the main reasons why the question is not being asked and how can this be corrected?
- Firstly, during busy lunch and dinner periods, the server’s main priority is to get through the queue as swiftly as possible to ensure customers are not waiting too long.
- Secondly, many establishments may already have several options to deal with while serving a customer: Small, medium or large? Soya, almond, skimmed or coconut milk? Caffeinated or decaf? An additional question at the end of the line may simply be forgotten.
- Thirdly, with a high turnover of staff in the catering trade, priority is often put on knowing how to use the tills and coffee machines, and observing health and safety issues, rather than considering VAT procedures.
While all three reasons are not deliberately intended to swindle HMRC and underpay VAT, if such issues were investigated by HMRC, it would be the business owner who would be paying any resulting penalties.
With MTD here, it may be advisable to discuss your VAT procedures with your staff, just in case HMRC should come knocking.
Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.