Food processing services (VAT Notice 701/40)
Check the VAT rules for food processing and abattoir services.
1. Food processing services
1.1 What this notice is about
This notice explains the VAT rules for food processing services, including abattoir services. It also details the tax treatment of Agriculture and Horticulture Development Board levies relating to the meat industry.
1.2 General principles
The processing of someone else’s goods is a supply of services. If that process produces new zero-rated goods, it is zero-rated.
New goods are produced when a process alters the essential characteristics of the goods. Where the process does not produce new goods, or the goods are not zero-rated, then the process is standard-rated. In these cases, VAT is due on the charge for providing the processing service.
1.3 When new goods are produced
The following may help you decide if new goods are produced:
- size and shape
- appearance
- composition
- use
- specifically for food items, readiness to use or eat
1.4 Examples showing how the conditions are applied
The distinction between smoking different types of fish illustrates how the conditions are applied.
The process of smoking salmon is zero-rated, as the new product, the smoked salmon, is a new zero-rated food item. The smoked salmon is immediately edible, making it distinct and different following the process of smoking.
The process of smoking cod is standard-rated as it does not produce a new zero-rated food item. The smoked cod is not immediately edible, and the essential characteristics have not changed following the smoking.
2. Examples of food processing services
2.1 Examples of zero-rated processes
Meat and fish processing:
- butchering carcasses, including boning and jointing meat
- brining or curing pork into ham
- processing meat into sausages
- smoking trout and salmon
Fruit and vegetable processing:
- drying, cleaning and coating seeds or grain to make it marketable as seed for sowing, milling grain into flour, meal or semolina
- cooking, canning or otherwise preserving fruit and vegetables
- drying fruit
- roasting or grinding coffee beans
- grinding granulated sugar into caster or icing sugar
Other services:
- refining crude oil into edible oil
- processing used or contaminated oil into edible oil
- processing of liquid milk into dried milk
- kneading blocks of frozen butter, adding salt and water and packing
2.2 Examples of standard-rated processes
Meat and fish processing:
- slaughtering animals without further process
- smoking herring to make kippers
- smoking cod and haddock
- shelling shrimps, prawns or other shellfish
- skinning fish
Fruit and vegetable processing:
- cleaning and conditioning grain
- drying grain
- harvesting crops
- malting barley
- blending tea
Other services:
- sorting, grading or packaging any product
- maturing cheese or any other product (effectively a process of storage during which a natural change occurs)
- pasteurisation or sterilisation
3. Abattoirs
3.1 Slaughtering and dressing
The service of slaughtering animals without applying further processes is standard-rated. But if other processes are applied at the same time to produce new zero-rated goods, for example, dressing the carcass, then the whole supply is zero-rated.
Not all services of slaughtering and dressing produce new zero-rated goods. Section 4 gives the liability of some of the goods produced by abattoirs. If you are in any doubt, contact VAT: general enquiries.
3.2 If you produce both standard and zero-rated goods
The services of slaughtering and then processing the carcass may produce new standard-rated and zero-rated goods — for example, standard-rated skins and zero-rated foodstuffs. Where the standard-rated goods are incidental to the main zero-rated supply back to the owner of the animal, the whole supply is zero-rated.
If the new standard-rated goods are the main element of the supply to the owner of the animal, and the zero-rated goods are incidental, then the whole supply is standard-rated.
3.3 Ancillary services supplied by abattoirs
Supplies of separate ancillary services are normally standard-rated. For example:
- cold storage
- pennage
- carriage
- porterage
If you allocate specific stalls or pens for the exclusive use of your customer, your supply is exempt from VAT. You can opt to tax these exempt supplies. Read Notice 742 Land and property for more information.
4. Liability of goods produced in abattoirs
4.1 Standard-rated goods
Goods produced in abattoirs are standard-rated if they’re:
- held out for sale for a non food purpose
- used for a non food purpose, including skins, horns and manure
- held out for sale without further process as canned, packaged or prepared pet food (read Notice 701/15 Animals and animal food)
- used in the preparation of pharmaceuticals
4.2 Zero-rated goods
Goods produced in abattoirs are zero-rated if they’re:
- fit for human consumption
- animal materials, used in the manufacture of food for animals or pets, and the Animal By-Products (Enforcement) (England) Regulations 2011) and parallel legislation in devolved administrations permits the use of the materials, and the animal materials are used in premises approved by the Order
4.3 Examples of zero-rated goods
Examples of zero-rated goods from cattle, sheep, goats and pigs are:
- organs including, bladders, hearts, kidneys, livers, lungs or lites, manifolds, pancreas glands, rede, stomach, and sweetbreads (pancreas only in cattle)
- body parts including, bones, feet, paddywacks, runners (except cattle), tails, udders and weasand
- fluids and tissue including, blood, dripping, fat (provided it is not attached to specific risk material), and meat
Other zero-rated parts commonly produced from cattle include melts (from calves under 6 months), tripe and vells.
5. Agriculture and Horticulture Development Board (AHDB) Levies
Previously, levies charged by the AHDB were treated as being charged in respect of taxable supplies, meaning VAT was charged on the levies at the standard rate.
As of 1 April 2022, HMRC no longer considers these levies to be within the scope of VAT, meaning no VAT should be charged.
5.1 Background to the AHDB levies
There is a levy in 2 parts on:
- slaughterers and livestock exporters
- livestock producers
The levy is absorbed and paid to AHDB by the slaughterers or exporters, of which 50% is to be reclaimed statutorily from the producer.
Previously, HMRC considered the levy to be a payment for a range of benefits received from AHDB and to be within the scope of VAT, which was charged at the standard rate.
However, as of 1 April 2022, HMRC considers the levies to fall outside the scope of VAT.
5.2 AHDB levies
If you’re the slaughterer
You’ll be charged the whole amount of levy by the AHDB, and then must recharge the producers 50% of the levy. AHDB will provide one invoice to you confirming the amount of levy. Previously, this invoice would state the output tax charged. However, no VAT should now be applied to the levy, as HMRC now considers them to fall outside the scope of VAT.
If you recharge part of the levy to producers, you should not account for VAT on this charge.
If you’re the producer
You will not be charged VAT on the recharge by the slaughterer, meaning there will be no VAT to recover as input tax.
If you’re an exporter of live animals
No VAT should be charged on levies you incur and recharge.
6. The Agriculture and Horticulture Development Board circulars
HMRC and the Agriculture and Horticulture Development Board reached an agreement over the VAT treatment of levies collected (invoiced) from 1 April 2008 by the Board from operators of slaughterhouses and exporters of live animals.
Before 1 April 2008, similar agreements existed between the Meat and Livestock Commission and HMRC.
However, as of 1 April 2022, HMRC considers the levies charged by the AHDB to fall outside the scope of VAT.
Your rights and obligations
Read the HMRC Charter to find out what you can expect from HM Revenue and Customs and what we expect from you.
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Updates to this page
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Sections 5 and 6 have been updated to explain how Agriculture and Horticulture Development Board levies are treated in respect of VAT from 1 April 2022.
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First published.