Is catering at a university campus exempt?
A recent case at the First Tier Tribunal (FTT) has sought to clarify whether catering provided to students was an exempt supply.
In the case of Olive Garden Catering Company Ltd (OGC) the specific issue related to whether the catering was a supply “closely connected to education”, which in turn depended on which entity was actually making the supply to students at the University of Aberdeen (UOA).
In order for this exemption to apply, OGC would have to prove it was the principal in purchasing the food and other goods and an agent of UOA in delivering the catering.
If it was determined that the catering was a direct supply to the students instead of to the university then this would mean that the exemption could not apply.
The appellants stance was that the main supply was for food at the zero-rate, with the supply of staff being a separate supply and eligible for staff wages concession.
However, HM Revenue & Customs (HMRC) argued that the supply of food and staff by the appellant to UOA was a single supply of catering services at the standard-rate for VAT purposes
The outcome of this case could have wider implications for the catering industry as the procurement as principal and the delivery of catering as agent is common practice in the education sector and, therefore, this case’s focus on whether the relevant documentation actually reflected the economic reality was critical.
HMRC’s internal VAT manual VTAXPER64300 sets out the general principles for determining the VAT treatment of supplies made under a catering contract, which depend in some situations on the capacity in which the caterer supplies its service, whether as principal or agent in the agreement.
Of relevance in this case were the following statements:
(1) In general, it has been established practice that agency contracts are most often used in the education sector.
(2) Under agency contracts for the provision of catering it is accepted that:
- The client makes a taxable supply of catering to the consumer, or the catering is subsumed within an overall exempt supply, eg; of education
- VAT is not charged to the client on wages of the catering staff employed at the unit
- VAT is charged on any management fee plus taxable stock and other services
- Schools may only exempt supplies which are closely related to the overall provision of education
(3) This contributes to fair competition with in-house providers and the contract catering industry acknowledges the value of that.
Based upon this, UOA was the principal and OGC was the agent by reference to the control exercised over; menu specifications, pricing, and the premises in which catering was carried out.
The relevant contracts for the provision of catering set out the UOA terms and were indicative of its status as the principal in the catering contract.
Having reviewed this relationship, the judge stated that the catering contracts between UOA and OGC appeared to be an agency contract with OGC acting as the agent.
Consequently, the food produced by OGC and served by its staff at UOA’s halls of residence was potentially a supply of food in the course of catering that can be subsumed within the overall exempt supply of education by UOA.
While this can be considered a win for the appellant, this ruling was only achieved following a detailed review of contracts and documentation between the principal, UOA, and OGC acting as an agent.
It is likely that future cases involving the agent/principal point will similarly rely on the points of the case and its merits. However, there can be no blanket VAT treatment and certain factors will point one way and others to a different VAT treatment in other cases.
AS HMRC seem eager to challenge agent/principal treatment and it is an area which has an enormous tax impact on a business, we would recommend that any contracts/documentation which cover potential agent/principal issues are reviewed to avoid unwanted attention from HMRC.