In our regular Q&A series from Croner Taxwise, VAT adviser, Priyesh Mistry explains the VAT implications of restaurants providing a delivery service, whether they need to account for standard rate VAT and the liability of the delivery fee
Q: My client has several eat-in dessert parlours that have been closed since March due to the coronavirus pandemic. Like many others in the restaurant/catering sector, the client has changed their business model, and is now providing a delivery-only takeaway service?
Customers will be able order from a limited menu including warm crepes and waffles served with cream or chocolate sauce, ice cream tubs, a selection of cream cakes, hot drinks and milkshakes. The crepes and waffles are best eaten hot and will be delivered in heat retaining packaging. They will also charge a flat £5 delivery fee for each order. Before the pandemic, the client accounted for VAT at the standard rate of 20% on all sales. Will they need to account for standard rate VAT on the takeaway sales? What is the liability of the delivery fee?
Since providing the delivery-only service many customers making payment with cash do not require /want us to give change. How should we treat the retained change?
A: All supplies of desserts and drinks (irrespective of whether they are hot or cold) for consumption on a client’s premises are treated as supplies of catering; a standard rated supply. Dine-in supplies are seen to have a significant element of service, rather than merely a supply of food. On the basis that your client only provided food to be eaten-in prior to the pandemic, all their supplies would have been correctly treated as standard rated catering.
Now that your client is providing solely takeaway desserts and drinks, consideration need to be given as to whether the supplies still fall within the definition of standard rated catering. If there is no supply of catering, the applicable VAT rate will be based on the liability of the food item itself. Information on what HMRC consider to be a supply of catering can be found in VAT Notice 709/1 Catering and Takeaway Food, and the liability of food is covered in VAT Notice 701/14 Food Products.
The liability of the specific products supplied by your client are as follow: –
Warm Crepes and Waffles – the supply of ready to eat hot food is catering – therefore the supply of the waffle /crepe and its toppings with be standard rated. See section 4 of Notice 709/1
Ice Cream Tubs – Ice cream is standard rated – See Notice 701/14 para 3.5. It is one of the food items excluded from zero rating.
Hot Drinks – as with hot food these are supplies of catering and standard rated.
Cream Cakes – are zero rated food when not supplied in the course of catering
Milkshakes – are zero rated provided they are predominantly milk based – if not then these will be standard rated. See para 3.7.2 of Notice 701/14 and detail information in HMRC VAT Guidance Manual VFOOD7660 Excepted items: beverages: milk and milk-based drinks
Where an order consists of both standard and zero-rated items, not specifically intended to be eaten together (unlike the cream or chocolate sauce provided with the hot waffle) there will be a mixed supply. VAT will be required to be accounted for on the value of the standard rated items.
The delivery charge for a supply of delivered goods will follow the liability of the goods supplied; this is confirmed in VAT Notice 700/24 Postage and Delivery Charges and Direct Marketing section 2.2. If the order is for mixed liability supplies as above, the delivery charge will need to be apportioned between the standard and zero rated items.
Provided it is made clear that there is no obligation for the customers to pay any additional service charge or amount, any amount given by the customer over and above the agreed charges for food and delivery can be treated in the same way as a freely given gratuity or tip, which are outside the scope for VAT purposes, as they are not seen to be consideration for any supply of goods or services.
This update is subject to change at short notice as the government releases its own updates – this guidance was last updated Friday 15 May 2020
Further information on covid-19 is available here, Croner Taxwise consultants
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