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HMRC internal manual

VAT Government and Public Bodies

HM Revenue & Customs
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Local authority education services: related activities: supplies of food and drink

Sales of food and drink by a local authority to pupils in its maintained schools are non-business. They are therefore outside the scope of VAT if made at, or below, cost. ‘Cost’ means the full overhead-inclusive cost of bringing the food and drink to the pupils. This includes, for example, the labour costs associated with cooking hot meals.

Whether it is ‘at or below cost’ can be determined in one of two ways. Firstly by a school looking at all local authority catering outlets on its premises, for example canteens, refectories, tuck shops, kiosks, trolleys, vending machines and the like. So long as the total sales are at, or below, cost the school can treat all its sales as non-business. Exceptionally a school may be allowed to apply the comparison to each catering outlet on the premises and determine which ones meet the criterion and which do not. Output tax is then only be due from the outlets where cost is exceeded.

Secondly a local authority can analyse all its school catering outlets together. This will produce a single set of figures from which the local authority can determine whether catering is provided at or below cost across its whole school portfolio.

It is important to remember that this treatment applies only to sales of food and drink by a local authority school to its pupils and from outlets operated by either the local authority itself or the governing body. If the actual supply of food and drink is by a catering contractor acting as principal, agent or a combination of both, VAT treatment described in Notice 709/1 ’Catering and take-away food’ continues to apply. (External users can find the notice at Whether within or outside an agency arrangement, only supplies of food and drink by a school to its pupils can at any stage be treated as non-business.

In general, unless there is compelling evidence to suggest otherwise, it can be accepted that all sales of food and drink by a local authority school to its pupils can be treated as non-business. This applies only to schools.

If staff and visitors are free to use any of the catering outlets provided by the school, an apportionment by any fair and reasonable method must be applied to determine the level of taxable business sales.