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HMRC internal manual

VAT Business/Non-Business Manual

From
HM Revenue & Customs
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Clubs and associations: catering by service messes and service funds for junior ranks

Mess catering

The Ministry of Defence is required to provide official rations for servicemen residing in the mess. Deductions from pay are made to finance these basic messing provisions.

Alternatively cash payments may sometimes be given in lieu of rations. This may happen if the mess personnel are serving on exercises. Both deductions and payments in lieu are outside the scope of VAT.

In addition to the basic messing charges, there may be additional charges:

  • Extra messing payments; these are charges made in addition to the basic food charge to defray the cost of food purchased by the mess to augment the official ration;
  • Casual messing payments: these are charges for meals taken by service personnel and civilians who are not resident members of the mess. The ultimate liability for these charges will normally fall to the MoD public fund rather than the mess non-public fund. However, the charges for casual meals, including VAT, may initially be collected through the non-public fund for administrative convenience.
  • Bar charges.

Please see the table, which summarises the charges for facilities typically provided in service messes, all of which are standard-rated.

### Recipient of Facility ### Charges met by ### Extra-messing ### Casual Meals ### Bar Sales ### Mess Sub-scrip-tions
           
1. Single servicemen living in Recipient S N/A S OS
2. Married unaccompanied servicemen living in Recipient S N/A S OS
3. Married, accompanied and single servicemen living out Recipient S S S OS
4. Civilians (non-industrial) other than 6 and 7 below Recipient S S S S
5. Civilians (industrial) other than 6 and 7 below Recipient S S S S
6. Civilians from Govt. Depts. attending Service training courses (a) Recipient S* S* S S
Ditto When reclaimable, (b) Sponsoring authority S* S* N/A S
7. Contractors’ employees attending training courses Recipient or Contractor S* S* S S
8. Foreign and Commonwealth personnel (other than 9 below) (a) Sponsoring authority S S S OS
Ditto (b) Recipient or MOD S S S OS
9. Foreign and Commonwealth personnel attending Service training courses (a) Sponsoring authority S S N/A OS
Ditto (b) Recipient or MOD S* S* S OS
10. Staff of SHAPE, NATO and armed forces of USA, FGR and Italy (a) Sponsoring authority OSt OSt N/A OSt
Ditto (b) Recipient or MOD S S S S
Key    
     
S = Standard Rated
OS = Outside the scope
N/A = Not applicable
* = If MOD purchases supplies of catering (which are standard-rated) from the mess and passes the charge on together with the training charge, the whole package is an exempt supply by MOD
t = Relief available subject to the provisions of s.8.30 being met

Catering in messes by outside contractors

Hot food supplied to the mess by outside caterers is standard-rated whether the food is delivered to or prepared in the mess or a field kitchen.

Cold food is standard-rated in the following circumstances:

  • if it is consumed in the mess or within the camp boundaries other than in married or other living quarters, or;
  • if it is among the list of items which are always standard-rated. This list includes ice-cream, confectionery, chocolate biscuits, alcoholic drinks, most soft drinks, crisps and salted or roasted nuts.

Special functions

These include entertainments, guest nights, dining-in nights and regimental dinners. The sums paid by individuals to attend such functions are standard-rated.

Whether or not these functions are to be treated as business activities depends upon their sources of funding:

  • funded exclusively by payments from individuals - to be treated as wholly business;
  • funded partly by payments from individuals and partly by grants from taxed mess income - to be treated as wholly business;
  • funded exclusively by grants - to be treated as non-business.

In this paragraph the term ‘grants’ does not include money used to fund an activity that comes from the entertainment fund.

Entertainment fund monies bear VAT because they represent the consideration for taxable supplies of entertainment. Monies applied from other sources of income, even if taxed, are ‘grants’ because:

  • they represent a transfer of funds and;
  • they are not consideration for the supply of entertainment.

Where functions are funded partly by payments from individuals and partly by grants from untaxed mess income it is important to establish that untaxed mess income is not used to subsidise business activities.

Input tax

VAT-registered messes can deduct input tax, subject to the normal rules, where VAT has been incurred on goods and services purchased for the purpose of business activities.

VAT incurred in connection with expenses met from mess subscriptions or other income credited to the General Purposes Fund (Army) or Maintenance Account (RAF) will normally relate to non-business activity. It is not input tax.

Consequently, VAT incurred on the purchase of general items such as a music centre or TV, even if for the bar, is not deductible as input tax. The VAT incurred can be deducted as input tax if the goods or services purchased are clearly to be used for a purpose involving the making of taxable supplies.

Any VAT incurred must be apportioned if goods or services are to be used for both business and non-business purposes. Only the business element can be treated as input tax.

For example VAT incurred on the purchase of a computer to be used to process information on both business and non-business accounts should be apportioned according to the extent to which it is used in respect of each account. Similarly, VAT incurred on audit fees should be apportioned if both types of accounts are audited.

Exempt supplies

Some registered messes may make exempt supplies such as:

  • lotteries;
  • raffles;
  • draws; and
  • sporting services.

When this happens the normal rules on partial exemption and input tax deduction apply.

In practice, the value of exempt input tax incurred by most messes will be low enough for them to be treated as fully taxable.

Goods and services purchased for resale to members

Some messes buy sundries, such as toiletries or boot polish, in bulk and resell them in the same state to members at cost price. These sales can be treated as outside the scope of VAT. Output tax need not be charged and VAT incurred on their purchase cannot be treated as input tax.

If the items are sold:

  • at more than cost; or
  • in an altered state; or
  • are used to provide services

VAT must be charged and input tax on the purchase can be deducted.

Messes onboard ships

All supplies made by ships’ messes while outside territorial waters are outside the scope of VAT. If the taxable turnover while inside territorial waters is sufficiently high to require registration supplies should be dealt with in accordance with the preceding paragraphs.

Supplies to messes in ships are referred to in Notice 703 VAT: Export of goods from the United Kingdom 

Charges for facilities provided in service messes

### Recipient of Facility ### Charges met by ### Extra-messing ### Casual Meals ### Bar Sales ### Mess Sub-scrip-tions
           
1. Single servicemen living in Recipient S N/A S OS
2. Married unaccompanied servicemen living in Recipient S N/A S OS
3. Married, accompanied and single servicemen living out Recipient S S S OS
4. Civilians (non-industrial) other than 6 and 7 below Recipient S S S S
5. Civilians (industrial) other than 6 and 7 below Recipient S S S S
6. Civilians from Govt. Depts. attending Service training courses (a) Recipient S* S* S S
Civilians from Govt. Depts. attending Service training courses When reclaimable, (b) Sponsoring authority S* S* N/A S
7. Contractors’ employees attending training courses Recipient or Contractor S* S* S S
8. Foreign and Commonwealth personnel (other than 9 below) (a) Sponsoring authority S S S OS
Foreign and Commonwealth personnel (other than 9 below) (b) Recipient or MOD S S S OS
9. Foreign and Commonwealth personnel attending Service training courses (a) Sponsoring authority S S N/A OS
Foreign and Commonwealth personnel attending Service training courses (b) Recipient or MOD S* S* S OS
10. Staff of SHAPE, NATO and armed forces of USA, FGR and Italy (a) Sponsoring authority OSt OSt N/A OSt
ditto (b) Recipient or MOD S S S S
Key    
     
S = Standard Rated
OS = Outside the scope
N/A = Not applicable
* = If MOD purchases supplies of catering (which are standard-rated) from the mess and passes the charge on together with the training charge, the whole package is an exempt supply by MOD
t = Relief available subject to the provisions of s.8.30 being met