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HMRC internal manual

VAT Food

Excepted items: catering: secondary catering issues: catering staff wages concession

If your trader is a catering company that acts as an agent, you may need to aware of the existence of this extra-statutory concession (ESC) agreed with the British Hospitality Association prior to the introduction of VAT in 1973. This relates to the treatment of catering staff wages in particular situations. Where a catering contractor:

  • acts as an agent of its client and not as a principal,
  • pays the wages of its own staff who are employed solely to serve that particular client, and
  • clearly identifies their wages in profit and loss accounts and/or invoices to that client,

then the contractor may treat such wages as disbursements and need not charge VAT on them. VAT is chargeable on the management charge to the client.

You will see that this arrangement does not meet the normal criteria for the treatment of disbursements as set out in Notice 700, The VAT Guide. It was introduced as a concession primarily to reduce the burden of taxation where the client was unregistered or partially exempt and can apply only in the above circumstances and to catering situations.

Following the House of Lords’ judgment in the Wilkinson case, HMRC is in the process of reviewing the status of all of its extra-statutory concessions.