Cooking up a Storm - VAT & Catering

Article contributed by Charlotte Middleton & Richard Turnbull (KPMG)

KPMG's session took a closer look at some of the issues that arise on university catering operations, especially where they are outsourced. 

The key points from the session were that:

• University tax managers need to be involved from an early stage in the tender process if a university is outsourcing or changing its catering provider
• There are different types of catering arrangements with outsourcers, with different VAT consequences
• Recent case law such as Olive Garden Catering Company Ltd v HMRC has highlighted the importance of getting the contracts right
• There is a lot of complexity to determining the University’s VAT liability from catering activities, whether it’s in-house or outsourced.

Use of agents

It is rare for a third party catering services manager/provider to be completely up to speed with all of the VAT complexities that arise in relation to catering at universities and on a practical and contractual level; this creates areas of risk and uncertainty. We have seen a significant variance at the tendering stage in terms of awareness and ability to accommodate any university specific issues. 

If an agent is used, our key message is to ensure the Finance department is involved at the earliest possible stages and is therefore able to influence and input into the negotiations. As expected, the contract is important as a starting point (notwithstanding the principle of substance over form) and this should clearly be pulled together with a nod to the key VAT areas of risk, including: 

• application of the wages concession where applicable (conditions apply);
• ability of the agent to purchase foods items as agent of the university;
• responsibility of determining the correct VAT liability of sales income;
• invoicing details;
• profit share arrangements; and
• record keeping requirements, etc. 

In-house catering

If an agent is not used, the key areas to consider are ensuring the university has over-sight of the liability attached to each product (meal deal options being considered carefully) consistency of approach to take-away sales/retail sales and accurate capture of zero-rated, exempt and standard rated sales.  Training of staff and clear processes should not be under-estimated. 

We know that HMRC are looking at specific VAT cases and claims in relation to catering, such that a review of this area could be a good idea.