The food and drink industry is a vibrant and fast-moving area so here is a summary of some recent news to keep you up to date.
Selling gift vouchers in restaurants can be a really good way of generating some additional sales but also getting customers to try a new venue. Although well established, the accounting for these is a bit different to normal sales. Income from the sale of vouchers can only be recognised once the voucher has been used or once it has expired.
What has changed recently is the treatment of these vouchers for VAT. From 1 January 2019 VAT rules have changed from separating the sale of the voucher and the underlying service as separate supplies to recognising only a single supply from a VAT perspective, which is recognised on the sale of the voucher. Simply put, this means that VAT is paid by the customer at the point of sale of the gift voucher.
This applies where vouchers are single use and sold where the place of supply of the underlying service is known. This usually the case for restaurants and cafes but it should be noted that other rules are in place for multi-use vouchers.
In October, the prime minister revealed her plan to introduce ‘tough’ legislation to ensure that hospitality workers retain 100% of tips earned. Although this is yet to be enacted, Mrs May explained that the legislation is planned to be implemented at the ‘earliest opportunity’.
Tipping has been a contentious issue in the sector for a long time and changes to the way tips were distributed at TGI Friday’s with a greater percentage going to kitchen staff, resulted in strike action at a small number of branches in 2018.
A code of best practice for dealing with tips has been developed within the sector and with the upcoming legislation now may be a good time to review the practice within your business.
VAT on Hot and Cold Food
The recent dismissal of restaurant chain Eat’s ‘hopeless appeal’ that breakfast muffins and grilled ciabattas should be classified as cold takeaway food and therefore are zero rated for VAT, highlights that many restaurants still get this issue wrong. As such, below is a reminder of the rules for hot and cold food and VAT.
All food which is to be consumed on the premises is standard rated for VAT whether it is hot or cold and some food such as ice cream and famously Jaffa Cakes are always standard rated. The confusion really arises when it comes to takeaway food, where only hot food is standard rated whereas cold food is zero rated for VAT.
Food is deemed to be hot if it is above ‘the ambient air temperature’ when served, i.e. if one of the following tests is passed when the food has been:
- heated for the purposes of enabling it to be consumed hot
- heated to order
- has been kept hot after being heated
- provided to a customer in packaging that retains heat (whether or not the packaging was primarily designed for that purpose) or in any other packaging that is specifically designed for hot food
- advertised or marketed in a way that indicates that it’s supplied hot
In the case of Eat, their appeal (regarding tax of in excess of £1.2m) failed as the food was heated to order and the packaging advertised to customers that they should ‘eat hot’.
Please contact us today if you would like to discuss any of the topics above or any other food and drink sector issues with our team.