That thing about fast food restaurants asking if you’re “eating in or taking away” isn’t just about whether you get a tray or a bag in Maccies.
Eating in at a restaurant, café, or similar venue is subject to the standard VAT rate of 20 per cent. Takeaway food is generally zero-rated for VAT, except for hot food and drinks, which are taxed at 20 per cent unless they are cold and not designed to be eaten hot (e.g., sandwiches or packaged snacks).
Is a biscuit a cake, what is a jaffa cake, and so on.
Ages ago, the rule actually meant different prices for eat in or take out in some fast food places – including in the Golden Arches. But these days that differentiation tends to be hidden and sorted out internally.
It’s not the case for universities. Where an educational establishment is an eligible body within the meaning of HMRC’s rules (Note 1 to Group 6, Schedule 9 of the VAT Act 1994) not only are its supplies of education exempt, but that exemption also applies to any supplies of goods and services that are closely related to that exempt education.
Item 4 of Group 6 provides this exemption, which extends to supplies of catering – although given the prices in plenty of university outlets, it often doesn’t feel like it.
Certain supplies of education, training and research are exempt from VAT. Where an educational institution provides exempt education to its own pupils and students, then the supply of catering they make is also exempt… Whichever treatment is appropriate it applies to anything provided by way of catering. This includes food supplied at mealtimes and break times from the refectory, canteen or other similar outlet but not items purchased from a university campus shop, as they are not provided by way of catering.
The question that then arises is whether and how that applies to the SU outlet a few yards away. Since March 2002, HMRC has operated a published concession extending the exemption granted to supplies of catering made by universities to SUs.
Generally, the rule has been that if you’re an SU and you’re supplying catering (including hot takeaway food) to students both on behalf, and with the agreement, of the parent institution, as a formal HMRC concession you can treat your supplies in the same way as the parent institution itself:
This means that you can treat your supplies as exempt when made by unions at universities… This means that most supplies of food and drink made by the union, where the food is sold for consumption in the course of catering will be exempt (read sections 2 and 3 of this guidance). For example, food and drink sold from canteens, refectories and other catering outlets (excluding bars), plus food and drink sold from vending machines situated in canteens and similar areas. But it does not cover food and drink sold from campus shops, bars, tuck shops, other similar outlets and certain vending machines (read paragraph 2.4 of this guidance).
It’s that “excluding bars” bit that is now causing a problem.
They’ve changed their tune
For a long time, HMRC was operating in way that suggested it was satisfied that catering supplied in a bar was considered to be exempt – and only food like bar snacks and alcoholic drinks did not fall within the exemption.
But a few years ago, the position seemed to change. HMRC started to unexpectedly assess SUs for under-declared output VAT on sales of catering – with potential interest and penalties becoming due.
The idea that SUs won’t be treated in that “closely related” way when supplying catering to students is bad enough – but catering becoming more expensive for students given what else we know about student hardship would be a disaster.
The whole thing has been rumbling on for a few years now, with NUS (Charity) taking up coordination on the case – and last week it ended up at the High Court, in the official form of Anglia Ruskin SU seeking a judicial review versus HMRC.
It’s not good news. The court ruled that “92” – “your go place for Beers, Burgers, Coffees and Cocktails” – is a bar within the meaning of HMRC’s VAT concession, meaning its supplies of food and drink are subject to standard VAT and not exempt.
ARU SU’s argument was that a bar, by definition, does not supply catering was rejected—the court held that bars commonly provide food, and the concession explicitly excludes bars from the VAT exemption.
Alternative arguments about turnover ratios (things like bars being defined by selling a majority of alcohol) were dismissed as artificial and unworkable.
And a second claim – that HMRC’s decision was irrational – was also rejected, because the court found that SUs are not “eligible bodies” under VAT law, unlike universities, so different tax treatment is justified.
It means the SU must continue charging VAT on food and drink sold at “92”, as it does not qualify for the VAT exemption. The judicial review was refused – and costs remain with the SU.
Irrational?
The judgement itself is a frustrating read – for legal reasons the judge didn’t really explore how or why HMRC was applying a completely different interpretation of the same rule previously. There’s also plenty to argue with in the sections where the judge wrestles with the meaning of “bar”.
But arguably the more alarming bit of the judgement is on that second ground – the irrationality argument based on difference of treatment.
Generally, a difference of treatment by a public authority between two entities which are in materially identical positions can “sound as an error” in public law. To prove that, you have to show that X (in this case the SU) is in a materially identical position to Y (the university).
You might think that the reason they introduced the exemption in the first place was surely because a university catering outlet selling burgers next to an SU bar selling burgers are basically the same, at least on the burger front if not the beer front. But that’s not how things panned out – instead, the judge viewed an SU bar selling food as much more akin to anyone in the local area doing so:
Mr Conolly’s reliance on the educational context of a university to justify a different treatment for catering supplied in establishments such as the Café is misplaced because such café-bars and bars are in fact undertaking taxable business in the same way as other café-bars and bars in the vicinity that provide catering supplies.
That they do not benefit from the “educational context” of the university is rational because as a matter of law their supplies are not closely related to the supply of education by an eligible body.
A student buying a burger at lunchtime on campus in an SU bar next door to a university canteen selling a burger (often for a higher markup) might be surprised to learn that the latter is closely related to the supply of education by the university, but the former isn’t.
They’ll be even more surprised when the prices go up or the SU bar either has to stop selling that food or closes altogether.
Is this a bar or a cake?
It’s not quite the disaster it looks – but now teasing out (and in some cases second-guessing) whether multi-purpose spaces will be seen by HMRC (and the courts) as a “bar” will now become much more important.
Of course, if it’s the case that “bar” is a hopelessly simplistic term to be arguing over in the context of venue and space complexity, HMRC could move to clarify the policy – but given the way in which it’s been changing its enforcement and interpretation tune, one that almost certainly now needs ministerial intervention.
I note in passing that in lots of European countries, “bar” and “pub” in an SU context rarely means a place – but an event. You tend to see catering spaces like refectories, dining halls and in some cases social learning spaces “become” a bar just for one night – the SU’s “Friday Pub” or “Thursday Bar” being a thing, with a festival-style set of pumps and bottles wheeled in and back out.
Bars are a hard thing to offer at the best of times – and these aren‘t the best of times – but maybe that’s an approach worth considering in the future.
