VIT46200 - Specific issues: treatment of VAT on catering overheads in clubs

A club may make a taxable charge to the franchisee for the right to use its facilities. This is often known as a franchise fee. If it raises a franchise fee the club may recover the input tax incurred on the overheads. It will have no liability to output tax on any deemed non-business use.

If the club makes no charge for the use of its facilities the treatment is as follows:

  1. Gas and electricity. Gas and electricity used by the caterer is not used for a business purpose by the club. The simplest way to deal with these supplies of goods is for the club to agree with HMRC some reasonable apportionment of input tax between the amount of fuel used by the caterer and the amount used elsewhere by the club.
  2. Kitchen equipment. As the club contracts, pays for and owns the equipment HMRC accepts it is bought for the purposes of the club’s business. This means that the VAT incurred is input tax and deductible by the club.
  3. Output tax is however due from the club under VAT Act 1994 Schedule 4.5(4) for each tax period the goods are used by the caterer.
  4. Building services. Since the building is an asset of the club and used by the members HMRC considers that VAT incurred on building works is input tax and deductible. The Supply of Services Order could apply in respect of VAT incurred on building repairs and maintenance to areas of a club’s premises used only by the caterer. However, such sums are usually so small that it is not cost effective to adjust for them.
  5. The club should account for output tax under the Supply of Services Order if it builds an extension in which there is a kitchen used by the caterer. But once output tax paid under the Order equals the input tax incurred there is no further tax due.