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Steve Allen of VAT Advisers Ltd highlights a further selection of recent VAT cases.

Tribunal says Second Phase of New Nursing Home Also Qualified for the Zero Rate

This case is worthy of note if only because it was an appeal that was formally represented by VAT Advisers Ltd!

The case concerns a charitable nursing home which claimed zero-rating on the construction of a new £400K kitchen and laundry block under VATA94 Group 5 Sch 8. The Appellant argued that even though the new facilities were built after the construction of the main residential part, they should still be considered part of the original construction. HMRC argued that it was an addition to a completed construction, and as such, the building contractor’s services were standard-rated.

The First Tier Tribunal (FTT) said that there needed to be a temporal connection between the two building projects as laid down in the St. Mary’s RC High School case. The FTT held that the period between the two projects was the 18 months between the developer’s liability for the original project ceasing and the date when the second phase (the new facilities) started. This was partly due to the Commission for Social Care Inspection believing that it was reasonable to allow the home to operate using the old kitchen and laundry facilities over that period, pending the construction of the new block (which was a CSCI requirement).

The FTT decided that the construction of the new kitchen and laundry block was a continuation of the original development, and as such, it was zero-rated. As you can imagine, our client was absolutely delighted with the result. [ Well done Steve! - Ed. ]

Hoylake Cottage Hospital Charitable Trust (TC00925)

Upper Tribunal says that Deliveries of Hot Food were Not Supplies of Catering

This case concerns whether deliveries of takeaway food which had been kept hot were zero-rated supplies of freshly cooked food, or standard-rated supplies of catering.

The Appellant supplied a range of foods from around the world including European, Indian and Chinese options. Only delivered food was offered. Whilst most of the items had a clear VAT liability (e.g., burgers were standard-rated and salads zero-rated), a dispute arose over a small number of items such as prawn toast, crispy duck pancakes, onion bhajis, and spring rolls. These were cooked on the premises and kept heated, but only for health and safety reasons. They could be enjoyed hot or cold.

Previously, the First Tier Tribunal (FTT) had found for HMRC by concluding that the food was heated above ambient temperature and was therefore ‘hot food’. The Appellant appealed on a point of law, contending that the items were not ‘hot food’ for the purpose of catering. The primary purpose of the heating was to demonstrate that the food had been freshly cooked rather than enabling it to be consumed hot.

In its analysis, the Upper Tribunal (UT) firstly considered the decision in John Pimblett and Sons, a taxpayer win in a similar case. The test applied in that case was to determine the supplier’s subjective purpose in heating the items. It is not part of the test that the supplier knows that the items will or may be consumed hot. In Pimblett, the primary purpose was held to be the cooking of the pies, rather than the supply of them hot to customers. The two key differences from this case were that the pies were not kept hot with any kind of heating apparatus, and that the customer came to the supplier’s premises to buy the pies, and enjoy the atmosphere and aroma.

The UT also considered the Malik case, where the taxpayer lost. In this case the food was heated as part of the cooking process, but the primary purpose was to supply food for hot consumption. In that case, there were steps taken to keep the food hot for reasons of consumer enjoyment. This differed from the current case in that, due to food safety regulations, the food needed to be kept either above 63C or be blast-chilled (commercially unfeasible in the current case) to 8C.

The UT Tribunal looked at the findings of fact from the FTT, and found that in this particular case, the purpose of heating the food was plainly to demonstrate to the customer that it had been freshly cooked. The purpose of the subsequent heating was to comply with food safety regulations and to avoid treating the items differently from other hot items. This meant the Pimblett test had not been correctly applied by the FTT. HMRC had stated in its skeleton argument that “the intention is that all customers get hot food and they get it because the Appellant intends to provide it to them while it is still hot.” The issue was in HMRC’s use of the word ‘intention’, as a distinction had been drawn between intention and purpose, with the former suggesting an inevitable consequence. The UTT noted that a clear distinction was made in Pimblett and Malik between the purpose of the supplier and the consequence of heating. To illustrate this point, it is not enough for a baker to supply fresh baked bread; it must also appear fresh baked. It may be eaten hot, but that is not the purpose of the bread being provided hot.
 
The UT subsequently accepted the Appellant’s reasons for keeping the items hot. In terms of general principles, the purpose of demonstrating food was freshly-cooked and the purpose of enabling the food to be consumed hot, were held to be separate concepts, despite one being a consequence of the other.

Deliverance Ltd ([2011] UKUT 58 (TCC)

[ The German Manfred Bog VAT case has also raised interesting questions about catering and zero-rating - albeit more in the context of the provision of food at stalls and the like. It remains to be seen whether or not other interested parties will pursue this further in the UK tribunals - Ed. ]