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HMRC internal manual

VAT Retail schemes guidance

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HM Revenue & Customs
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Special arrangements for certain professions or trades: Caterers

General

Although the supply of most food and drink of a kind used for human consumption is zero-rated, such supplies are taxable at the standard rate when made in the course of catering.

This change in liability between the purchase of foodstuffs and their supply in the course of catering causes problems for those caterers who are unable to use normal accounting or a point of sale retail scheme: provision needs to be made for some sort of special scheme.

The Commissioners, using the general power under Regulation 67 of the VAT Regulations 1995 [SI 1995/2518] to publish schemes, have provided for a catering adaptation in Notice 727 Retail Schemes. This makes it clear that traders supplying food for consumption on the premises and/or hot and cold take-away food may use the adaptation provided that:

  • they can satisfy us that they cannot use the point of sale scheme;
  • their annual retail catering turnover will not exceed £1 million per year; and
  • their use of the adaptation produces a fair and reasonable result.

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)

Businesses are required to sample the actual sales made each period to give a new calculation. This means that the new owner of a catering business cannot merely use the proportion established by a previous owner.

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)

Businesses that make retail sales in addition to catering supplies may simply use the point of sale scheme for the whole business. But, if the business uses any other scheme for non-catering supplies, they must keep separate accounts and records for each part of the business. If you are satisfied that a caterer would have difficulty in keeping separate records, an alternative method may be agreed.

Businesses with a retail catering turnover above £1 million per year are expected to have more sophisticated accounting systems in place which will enable them to determine actual supplies at the different rates of tax without using the catering adaptation. If a business claims that this is not so, and that they therefore need to use the adaptation, the NAS may consider such representations and agree the use of the adaptation in writing.

Goods taken out of another part of the business for use in the catering business

This frequently happens where, for example, a bakery or delicatessen makes catering supplies or a supermarket uses stock within a staff canteen or restaurant. If an apportionment or direct calculation retail scheme is being used in that other part of the business, adjustments must be made to the ESPs to reflect the effective transfer of stock between the different parts of the business.

If a retailer would find it difficult to do this precisely, a fair and reasonable estimate of the proportion of purchases that are subsequently used in the catering business must be made, for example based on usage and the pattern of trading in previous periods. That proportion must then be excluded from either the purchase records under the first apportionment scheme or the record of ESPs under the second such scheme and the direct calculation schemes.