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HMRC internal manual

VAT Food

Excepted items: catering: secondary catering issues: meals supplied free of charge

Where a trader provides free meals or drinks to persons other than family or employees, you must decide whether this falls under the business entertainment rules, or whether there is some form of non-monetary consideration given in return.

We regard the provision of free meals and drinks to customers or friends as business entertainment rather than as business gifts; and any input tax relating to the purchase of the goods used is disallowed. This is given legal force by the Value Added Tax (Input Tax) Order 1992, and fuller details are given in Notice 700/65 Business Entertainment.

However, it is more difficult to establish a situation where meals or drinks are provided for non-monetary consideration. VATSC, Supply and consideration gives guidance on consideration; but essentially you are looking for anything which is provided in return for the supply of the meal. A good example is the free meals given to coach drivers at motorway service stations: the meal may be free to the driver, but in return he has provided the establishment with extra custom. In these situations, the trader is entitled to reclaim input tax, but must account for output tax based on the cost to him of the purchase of the goods, or, if this cannot be established, on the cost of producing the goods.