VAT ruling opens up takeaway food issue

The news from the European Court of Justice follows a case brought in Germany that asked whether hot food and drink that is sold for immediate consumption should be considered as a supply of goods rather than a catering service. The former is subject to zero VAT in most European territories, while the latter incurs the full rate of tax.

The court agreed that takeaway food could indeed be classified as ‘goods’, though its ruling placed plenty of provisos on what is and isn’t included. In particular, it indicated that products could be classified as ‘goods’ only if they required very little preparation at the point of sale. That would seem to rule out more sophisticated street traders who do most of their preparation on site, but might include basic food stalls and coffee takeaways. In addition, the ECJ ruling said operators could make retrospective claims for VAT wrongly applied to sales.

The ruling will not necessarily be imposed in the UK. HMRC said it would investigate the implications of the ruling, but cast doubt on its validity. “HMRC does not believe the recent ECJ decision… has application in the UK.” But if it does not translate the judgment to the UK, HMRC could face legal challenges from operators, and tax experts have been advising businesses on the implications of the ruling.

Any reduction in the rate of VAT on takeaways could be good news for operators—though it might risk increasing at-home eating at the expense of dining out. Hannah Dobson, VAT director at accountancy group Smith & Williamson, said: “The ruling opens the way for catering chains, snack stalls, mobile snack bars, sandwich bars, cinema foyers and others to reclaim VAT, potentially worth thousands of pounds…

"The growing number of outlets selling, for example, pizza slices, take-away breakfasts and hot drinks, even cinemas which sell food items such as hot dogs and nachos could be eligible for a reclaim. To qualify, the predominant element of the transaction should be about food, rather than service.” She urged businesses to submit claims quickly, and said they had nothing to lose from doing so.