Billions at stake in a giant VAT takeaway

by Sarah Bridge - 02/05/2011

"Britain's biggest fast food retailers and sandwich chains are poised to launch claims for tax refunds that could run into billions of pounds."

Starbucks, Pret A Manger and McDonald’s are just some of the companies that could be affected by a recent European Court of Justice ruling, which states VAT should not be paid on food sold for immediate consumption, whether or not it is eaten inside or outside the outlet.

Until now, customers buying a sandwich, for example, have always been asked whether they are eating it in the shop or taking it away.

Sandwich ruling: Companies like Starbucks could be affected by the recent European Court of Justice ruling

If eating in, the retailer has been obliged to pay VAT on the product and generally passes it on to the customer, which means sandwiches have two different prices. Now the European court has ruled that where the level of service is minimal, it should be considered as a simple food sale not subject to the extra tax.

The ruling came after a case was brought by a German burger van owner, who protested after being forced to charge extra for food that customers ate while sitting on chairs by his van while those who ate standing up were charged less. It paves the way for all sorts of companies – from cafes to curry houses and fish-and-chip shops – to claim refunds. It could cost the Revenue dear as reclaimed VAT could stretch back over four years.

Bob Fox, director of the Nationwide Caterers’ Association, said: ‘It could cost the Revenue billions of pounds, but I expect it will fight tooth and nail against it.’

But a Revenue spokesman said: ‘The supply of all food eaten on the premises is a service issue and so remains standard rated for VAT.’

However, this position is expected to be challenged in the courts. Leisure giant Whitbread, which owns the Costa coffee chain, said: ‘It is something we are aware of. We are going to monitor what happens and act accordingly.’

Jim Winship of the British Sand-wich Association said his members were already asking how they could launch claims. ‘This could be huge,’ he said.

Hannah Dobson of accountancy and financial services group Smith & Williamson has already submitted claims to the Revenue on behalf of catering firms and expects more to come.

‘If you walked into a sandwich chain and bought a sandwich to take away, it would be a simple matter of catering,’ she said.

‘But if you took that sandwich and sat on a chair, it would count as a supply of service and would therefore be subject to VAT. The whole thing is bizarre. The courts are going to have to redefine what catering means.

‘The amounts reclaimed could run into millions, if not billions, of pounds.

‘Just think about a company the size of Starbucks, not just in the UK but across Europe.’

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