Staff Canteens & VAT

Background

Section 5 (3) Value-Added Tax, as amended, provides that the supply of certain services may be deemed by Regulation to be a supply of services by a person for consideration in the course of business.

Regulation 24 deems the supply of catering services by a person for his/her own private or personal use to be a supply of services for consideration in the course of business and, therefore, taxable. Similarly, the supply of catering services for staff to which he/she contributes in whole or in part is deemed to be a supply of services for consideration in the course of business and, therefore, taxable.

Regulation 24 states that the total cost of providing the service is taxable where it exceeds £500 in any taxable period but concessionally a limit of £20,000 per annum is applied.

Employers have the option of calculating their canteen liability on either the statutory basis or the concessional basis.

Statutory Basis (Section 5 (3) and 10 (4) VAT Act 1972)

Under the statutory basis, the amount on which the employer is liable to account for VAT is either the total cost of providing the service, which includes e.g. catering costs, light, heat, rent, wages etc. or the takings, whichever is the greater, at the 12.5% rate.

The employer will be entitled to take a deduction in respect of all VAT charged to him/her in connection with the operation of the canteen.

Concessional Basis

The concessional treatment applies where a canteen is operated by an outside caterer on behalf of an employer who makes no contribution, apart from a subsidy, towards the running of the canteen. The outside caterer accounts for VAT on both cash received from the employees and the subsidy from the employer.

The employer in these circumstances will not have to account for VAT under the statutory basis outlined above but will also not be entitled to take a deduction in respect of any VAT charged in connection with the canteen e.g. caterer’s invoice, VAT on building of the canteen area, VAT on capital equipment, light and heat etc.

Irrespective of which basis is used to calculate liability, the sale of alcoholic drinks, minerals and cigarettes is always subject to VAT at the standard rate. In addition, confectionery not consumed in the course of a meal is also liable to VAT at the standard rate.