Factual and Procedural Background
This opinion concerns an appeal against a decision classifying the Appellant's business under The Flat Rate Scheme for VAT purposes. The Appellant's business was classified by the Respondent as "catering services including restaurants and takeaways" rather than "retailing food, confectionery, tobacco, newspapers or children's clothing." This classification affects the applicable flat rate percentage, with catering attracting a 12% rate and retailing a 2% rate.
The disputed decision was communicated in a letter dated 21 November 2005 from the Respondent. The Appellant, a limited company registered for VAT in November 2005, initially applied and was approved for the retailing classification. Following an HMRC officer's visit, the classification was amended to catering, increasing the VAT due. The Appellant requested reconsideration, which upheld the amendment, prompting this appeal.
The business operates a kiosk selling ice cream and milkshakes suitable for human consumption by retail in a public square. Two tables and six chairs are provided, but there was no evidence of customers using them. The kiosk had planning permission for use as a retail unit (category A1) and not for restaurants or takeaways (categories A3/A5), prohibiting the sale of hot food. There was no element of food service or catering, nor was the supply connected to any specific event or occasion.
Legal Issues Presented
- Whether the Appellant's business should be categorised as "catering services, including restaurants and takeaways" or as "retailing food, confectionery, tobacco, newspapers or children's clothing" for the purposes of the Flat Rate Scheme.
Arguments of the Parties
Appellant's Arguments
- The Appellant's business is properly categorised as retailing food rather than catering services.
- The Appellant sells food by retail, not as a restaurant or shop selling hot food, supported by the Oxford English Dictionary definition of "takeaway" as a restaurant or shop selling cooked food to be eaten elsewhere.
- The kiosk did not have the necessary permissions to sell hot food, thus not qualifying as a takeaway or restaurant.
Respondent's Arguments
- The business should be categorised as catering services, including restaurants and takeaways.
- The milkshakes were prepared on site and ice cream prepared by the Appellant's director.
- Tables and chairs were provided for customers.
- Cold food taken away qualifies as takeaway.
- The margin taxed under retailing would be inequitable due to zero-rated inputs, justifying the higher catering rate.
- A purposive approach supports the catering classification.
- No alternative categorisation was proposed other than catering or retailing.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Whitbread Group plc v Customs and Excise Commissioners [2005] EWHC 418 (Ch) |
Consideration of the ordinary meaning of "catering" and its application in VAT classification. |
Referenced to understand the ordinary and natural meaning of catering services. |
| Customs and Excise Commissioners v Cope [1981] STC 532 |
Popular meaning of "catering" as provision of food incidental to other activities. |
Used to support the ordinary meaning test and factors relevant to catering classification. |
| Armstrong v Customs and Excise Commissioners [1984] VATTR 53 |
Recognition that catering is identifiable by an ordinary person and involves a range of factors. |
Supported the objective test applied by the court regarding the nature of the supply. |
| Safeway Stores plc v Customs and Excise Commissioners |
Definition of "in the course of catering" and relevant factors such as service, provision of cutlery, and connection to events. |
Guided the court's multi-factorial approach to determine if the supply constituted catering. |
| Prêt à Manger |
Consideration of the ordinary meaning of catering and its application in VAT contexts. |
Referenced as persuasive authority on the factual and degree-based nature of catering classification. |
Court's Reasoning and Analysis
The court began with the premise that the supply of cold food such as ice cream and milkshakes is prima facie a supply of goods, not services, and thus not catering. The critical question was whether the particular circumstances of sale converted this into catering services.
The court applied an objective test asking whether an ordinary person would regard the business activity as "in the course of catering." This involved assessing factors identified in previous case law, including whether the food was supplied in connection with an event or occasion, the degree of preparation required by the consumer, the presentation of the food, provision of crockery or cutlery, delivery or service, and the presence of waitress or table service.
The court found no evidence of catering services: the food was not connected to any event or occasion, required no further preparation beyond opening packaging, was not served with crockery or cutlery, was handed over at the kiosk without waitress service, and the premises lacked permissions for hot food sales or restaurant operation.
The court also considered whether the business was a takeaway. It concluded that the term generally implies the sale of hot food for consumption off premises, which was not the case here. The ordinary person would not consider the kiosk a takeaway.
Given these findings, the court determined retailing was the appropriate classification. The Respondent's arguments for catering classification based on purposive reasoning and tax equity were rejected as insufficient to override the ordinary meaning and factual circumstances.
Holding and Implications
The court ALLOWED the appeal and ordered costs in favour of the Appellant.
The direct effect of this decision is that the Appellant's business is correctly classified under the Flat Rate Scheme as "retailing food, confectionery, tobacco, newspapers or children's clothing," attracting the lower 2% flat rate. No new legal precedent was established; rather, the decision applied established principles regarding the ordinary meaning of catering and retailing in VAT classification contexts.