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HMRC internal manual

VAT Food

Excepted items: catering: secondary catering issues: vending machines

The liability of supplies of food and drink from vending machines depends on:

  • the product dispensed; and/or
  • the siting of the machine.

Product dispensed

The first question to ask is whether the machine is dispensing items as catering. Some traders may argue that their supply is one of grocery items.

In the case of Streamline Taxis (Southampton) Ltd (LON/85/0499), the trader provided a vending machine for the use of staff. The machine dispensed a foil container holding the ingredients of the drink selected in powder form. The purchaser took a paper cup from a holder on the side of the machine, emptied the foil container contents into the cup, and then filled it up with hot water.

Customs and Excise argued that the company was making supplies in the course of catering. The trader argued that he was supplying containers of dried grains of instant coffee, tea and soup in the same way as a supermarket would sell such goods. His staff could use their own cups or obtain hot water from another source.

The Tribunal found for Customs and Excise on the grounds that the purpose of the dispenser and the object of its provision was to provide drinks for consumption on the premises. The fact that the person to whom the supply was made had to shake the powdered ingredients into a cup and add hot water was not considered important.

Some goods are always standard-rated because they fall into the excepted items of Group 1. More common examples are bars of chocolate, confectionery, soft drinks, crisps, and peanuts.

Other goods are always standard-rated because they are hot at the time of supply and therefore covered either by the general catering exception or by Note (3) (b) to Group 1 as hot take-away food and drink. The most common examples are hot drinks such as tea and coffee; but standard-rating will also apply to items such as hot pies and other dishes which had been heated for the purpose of being consumed whilst still hot.

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You will only need to consider the implications of where a machine is sited when the above does not apply. Essentially, you must decide whether a supply of cold food, such as sandwiches, is to be eaten on the premises on which it is to be supplied, in which case it is standard-rated, or is to be taken off the premises to be eaten, in which case it is zero-rated.

There are effectively two scenarios regarding the siting of the vending machine.

All supplies of food and drink from vending machines sited in canteens and restaurant-type areas are standard-rated as supplies to be consumed on the premises where they have been supplied. An apportionment will be allowed if the food seller can produce evidence to show that a proportion of the items of cold food (that would be eligible for zero-rating) is taken-away from the canteen / restaurant premises (examples of apportionment are contained in VAT Notice 700).

All supplies from machines sited in thoroughfares and areas not designated for the consumption of food follow the liability of the product sold (see Notice 701/14, Food).

Lastly, if the vending machine is in a school, college or university campus you may need to consider whether the supply is closely related to the supply of education (further guidance on this area is contained in VATEDU. Where vending machines in a university are run by a students’ union you will need to read the appropriate sections of VFOOD.

In the case of West Country Vending Service Limited (WCVS) (LON/2009/0814) the First-Tier Tribunal considered two issues relating to supplies of zero-rated food made from vending machines. WCVS leased machines to customers located in office or factory premises. The Tribunal considered two separate arguments in support of the contention that all supplies made from vending machines should be zero-rated (unless an excepted standard-rated item such as confectionery).

The first argument, referred to as ‘the premises argument‘, was that, as the appellant had no control over any of the area (other than the machine itself) where the machine was sited, then all supplies made from the machine should be zero-rated. The Tribunal dismissed this argument noting that legally there was no requirement that the supplier should have any control over the premises where the supply is made and advocated following a common sense approach to the definition of ‘premises’. At paragraph 41 the Tribunal stated:

In a ‘common sense’ sense, we consider that if a vending machine is located in an office canteen, then supplies made from it are made ‘in premises’ and those premises are ‘the canteen’. We accept the technical point made on behalf of the Respondents that a machine cannot be ‘premises’, but we consider that the place where supplies are to be treated as made is in fact resolved by the simple common sense question of asking anyone where supplies made from a machine standing in a canteen are made, and plainly the answer would be ‘in the canteen’.

The second argument referred to as ‘the for consumption argument’ is that the word ‘for’ should be construed by reference to the suppliers’ subjective purpose as to whether the food is supplied for on or off premises consumption. The Tribunal also dismissed this second argument as it considered that the suppliers’ intention as per the statutory test had no bearing on supplies made for on and off premises consumption.

From 1 October 2012 the introduction of Note (3A) clarifies that the seating area provided would now be considered to be the premises.