VAT Treatment of Staff Canteens - Role of Commercial Caterer

Introduction

This article aims to clarify the VAT position relating to the role of the commercial caterer arising from the European Court of Justice in the "Hotel Scandic case".

The information contained in Tax Briefing, Issue 62, of December 2005 remains applicable.

European Court of Justice Decision

The ruling made by the ECJ in the Hotel Scandic case on the provision of staff canteen facilities is that the employer is liable to VAT, only on the amount received from the staff for the provision of the service. The ruling does not affect situations where an employer provides staff canteen facilities for which the employer receives no consideration from the employees. In those situations the employer is liable to VAT on the total cost of providing the canteen service for the employees.

A number of employers engage the services of external commercial caterers to provide the canteen services to staff. Frequently, the caterer collects the receipts from the staff and also receives a subsidy from the employer for the provision of the service.

Role of Commercial Caterer

Revenue accepts, in virtually all contracts involving a commercial caterer, that the caterer is operating as an agent of the employer in providing staff canteen facilities on behalf of the employer. In some exceptional cases, where the commercial caterer is providing the service for profit and does not receive any subsidy from the employer, it is likely that the caterer is acting on his or her own behalf and not as an agent of the employer.

Method of Returning the VAT on Staff Canteens

Arising from the ECJ decision in the Hotel Scandic case it is essential that VAT due on the monies collected by the commercial caterer from the staff of the employer is accounted for and returned by the employer, together with the VAT due in respect of the employer's other taxable supplies. In many cases, the monies received from the employees by the commercial caterer are not actually passed over to the employer, but rather are treated as part of the consideration due to the caterer for the catering service being provided to the employer. While the liability to account for and return the VAT due in respect of such monies lies with the employer, it is not essential that the monies received by the commercial caterer are given to the employer or lodged to an account in the name of the employer. It is sufficient that the commercial caterer advises the employer of the amount received from the staff and the VAT rates applicable to the supplies made. The VAT due on the receipts from employees in respect of the supply of staff canteen services must be accounted for and returned by the employer, as the concessional basis of return, i.e. whereby the caterer returned the VAT on the employer's behalf, has been withdrawn with effect from 1 May 2006.

Arising from meetings with representatives of the commercial catering companies, it has been agreed that in "fixed contract situations", i.e. where the commercial caterer works off a set charge for providing the service, that the commercial caterer will provide a breakdown to the employer of the sales that must be accounted for and returned by the employer at the appropriate VAT rates, together with the VAT due in respect of the employer's
other supplies.

Supplier of Canteen Services to an Authorised Person in Accordance with Section 13A VAT Act 1972 as amended.
(Zero-rating of goods and services in accordance with Section 13A VAT Act 1972)

A supplier of services consisting of food and drink is not entitled to zero rate this supply to an authorised person.

Accordingly, where an authorised person is liable to account for and return VAT due in respect of the catering services supplied to his/her staff, the authorised person may claim credit for the VAT charged on the food and drink supplied in his or her VAT return.

Summary

The following summary may be useful with regard to the role of the commercial caterer in situations where staff are contributing to the cost of the provision of canteen facilities being provided by an employer:

• The commercial caterer is liable to return VAT on the provision of his or her service to the employer.
• The employer is entitled to full deductibility on foot of the invoice from the commercial caterer.
• The employer and the commercial caterer are entitled to use the receipts from employees as part of the payment due from the employer for the provision of the catering service.
• The commercial caterer should provide the employer with details of the receipts from the employees, in respect of which the employer is obliged to account for and return VAT.

In situations where staff do not pay a consideration for the provision of the staff canteen facilities, the employer is liable to VAT on the total cost of providing the canteen facilities.