Purpose and origin of the relief
The basis of the relief of Group 1 Schedule 8 is to allow zero-rating for most food and drink which is meant for human consumption, but to tax items of food and drink which might be considered non-essential. For the practical application of the tax, the relief is extended to goods which, although not themselves immediately edible, do form part of the human food chain.
The Government White Paper issued in March 1972, prior to the introduction of VAT on 1 April 1973, envisaged that zero-rating would apply to all food for human consumption except those items now liable to Purchase Tax and ‘meals out’. The agriculture lobby then made representations to Parliament that all agricultural outputs linked to the production of food should be included in the zero-rated relief. As a result the Finance Act 1972 set out a wider range of relief to cover three further categories of goods in the food chain namely:
- animal feeding stuffs;
- seeds and plants; and
- live animals.
Purchase tax had been levied on
- confectionery, ice-cream and soft drinks since 1962, and on
- crisps, nuts and pet food since 1969.
The reference to meals out was a crude way of describing catering. There was some debate as to whether the provision of meals such as in works canteens could be considered in the same way as eating out in restaurants; but it was recognised that it would be impossible to distinguish fairly between what might be regarded as essential and what might be regarded as luxury meals. In addition expenditure on meals out in both the domestic and tourist markets was seen to be an important potential source of revenue. Catering, therefore, has always remained outside the relief.
Beers, wines and spirits were excluded from the relief for a different reason. They were already subject to customs and excise duties and the EC Second Directive indicated that reliefs should apply to cases of well-defined reasons of social interest and for the benefit of the ultimate consumer. It would have been difficult to argue strongly for the inclusion of these beverages in the relief and, again, alcoholic drinks were viewed as an attractive source of revenue.
Hot take-away food
The extension of VAT to hot take-away food and drink in 1984 was seen as a further step in the switch from taxes on earnings to taxes on spending. It was also seen as a means of alleviating the distortion between take-away and eat-in meals, and was achieved by extending the meaning of catering, which was already excluded from the relief.