VRS13010 - Temporary 5% VAT rate on hot food and on-premises consumption: Background

This information supplements external guidance published on gov.uk here and should be read alongside it.

The majority of businesses likely to be affected by the changes in VAT rate for on premises consumption of food and drink and supplies of hot takeaway food and drink will operate either a standard retail scheme or Bespoke Retail Scheme (BRSA) in order to value supplies they make at different VAT rates. These schemes can vary significantly depending on the capability of the systems and processes in place.

Larger retailers are likely to have EPOS systems that are able to identify the VAT rate of individual supplies at the point of sale, possibly even identifying those supplies which are eat-in or takeaway (resulting in a liability change). An issue with those retailers could be whether they can accommodate supplies potentially at the 3 VAT rates, e.g. their EPOS systems may be unable to cope with the addition of another VAT rate. Some may have a BRSA with relevant clauses based on the Catering Adaptation (Notice 727 section 7).

Smaller retailers that may have been operating the Point of Sale scheme (POS) because they were only supplying goods at one rate of VAT may no longer be able to operate POS as they have insufficient till capability. Some smaller retailers may be estimating their standard rated catering supplies using the Catering Adaptation or having an agreed estimation (depending on their turnover).

Where a business operates a BRSA or agreed estimation, which obviously won’t accommodate reduced rate supplies, it may be difficult to agree amendments to the schemes in time for the change in VAT rate. Although HMRC would not usually consider retrospective changes to BRSA, this may be necessary due to the short timescale from notification to implementation of the reduced rate. Should retailers require an amendment to a BRSA or agreed estimation they should contact HMRC as soon as possible outlining the issue and providing potential fair and reasonable solutions.

Meal deals. A specific area of difficulty could be around accounting for VAT at the right rate on meal deals, including those that offer an item for ‘free’.

With takeaway food it is possible that supplies will be at the 3 VAT rates, for example for £5 you receive:

  • Cold sandwich (Z/R) – normal selling price £3
  • Hot coffee (R/R) - normal selling price £2

  • Chocolate biscuit (S/R) – normal selling price £1Businesses will need to make fair and reasonable valuations to take account of the reduced/ standard/zero rated elements within meal deals. We would expect valuations to use the respective selling prices. Be wary of cost-based apportionments: the zero-rate/reduced rate items may need cooking/labour costs taking into account

    To assist you in considering the possible impacts on retail schemes we have included below tables covering potential scenarios and retail scheme options.

For further assistance please contact the Retail UoE.