You would be forgiven for thinking that the position on prepared foods is clear-cut: if you cook or otherwise heat them up for consumption by the public, then standard rate VAT applies. But this is not always a black and white distinction: it can be a very grey area. If you are in any way involved in commercial food preparation then this is something you should be aware of. HMRC does have teams of roaming inspectors and you may be unlucky enough to receive a visit from them, in which case they may take a different view of VAT treatment to your own.

The relevant piece of legislation can be found in VAT notice 709/1, and within that you will find in Paragraph 4.2 an explanation of HMRC’S interpretation of what hot food entails. However, there are foods that have to be cooked in advance as part of their processing, but they are not then delivered to the consumer in a hot state. One example that has been given is that of cabbage that is cooked for hours in order to turn it into ‘crispy seaweed’. The cooking is necessary in order for it to become edible, but it is then cooled and drained and later delivered cold to the takeaway customer, unless it happens to be in contact with a separate hot container.

The Key Tests
VAT notice 709/1, paragraph 4.2 states:
The sale of food is standard-rated if:
the food (or any part of it) is hot at the time that it is provided to the customer (“the precondition”) and one or more of the following five tests are satisfied:

• It has been heated for the purposes of enabling it to be consumed hot.
• It has been heated to order.
• It has been kept hot after being heated.
• It is provided to a customer in packaging that retains heat.
• It is advertised or marketed in a way that indicates that is it supplied hot.

It is probably the case that not every VAT inspector is fully au fait with the way in which worldwide dishes are prepared and consumed. A close examination of what happens to ‘seaweed’ shows that it is never made to order; it is fried in a bulk batch for hours in a quiet period, then is put aside to cool and drain off the surplus fat. The resulting crispy finished product is divided into portions and stored, often for days, in delivery containers ready to sell. These may be heat-retaining but the packages are not used for that purpose in this case. And as a final clincher, takeaways do not advertise this dish as being hot.

This is but one example where your catering firm may be able to successfully challenge the line taken by HMRC. You should however be ready to provide firm evidence, ideally with photos and clear explanations of your cooking and serving practice.

We at Odiri Tax Consultants are very well used to advising and acting on behalf of small businesses, including those in the restaurant and catering sector. Consult us on any matter like this if you want to ensure that zero-rated foods stay that way.