Although there has been a number of high profile changes to the way in which hot and cold takeaway food is treated for VAT purposes, it has always been the case that hot takeaways are standard rated at 20%. This will be the case whether the supply includes one item, or multiple items all taxed at the SR.
However, if a supply contains a mix of hot and cold food items with differing VAT treatments, it is perfectly acceptable to charge VAT on the hot food and apply the zero rate on the cold food. This is what KFC did…
KFC argued that, when making a multiple supply such as a meal deal along with cookies and coleslaw, they can apply the different rates of VAT on each individual item. No problems there. However, they also included the dipping sauces placed in the bag in the zero rating, (condiments are generally zero rated). Reasonable?
Multiple vs Single Supply
HMRC challenged the VAT treatment. Not because they disagreed that condiments are zero rated, but because of another area of VAT that KFC hadn’t considered. The concept of multiple vs single supply.
For there to be a multiple supply, there has to be different items that are capable of separate sale and would not take dominance over each other. Each item is an aim in itself. However, a single supply, which can still contain multiple items, would be treated as a single taxable item because only the dominant item is an aim in itself. The remaining items are ancillary to the single dominant item and should be considered a way in which to better enjoy that item.
For dipping sauces, HMRC argued that they were not an aim in themselves. Although they could be sold separately and had a monetary value, a buyer wouldn’t be seeking to go to KFC to buy dipping sauces for consumption. They would be buying dippers to dip in the dipping sauces. Which meant that the dipping sauces were a better way of enjoying the dippers and, therefore, their VAT treatment would have to follow the treatment of the dominant item.
The FTT agreed. Dipping sauces, although zero rated, are dipping sauces for dipping. There aim is to be ancillary to a dominant item. If sold with standard rated hot chicken, then they are standard rated. If sold with zero rated cold carrot sticks, they can be zero rated. Case dismissed.
The concept of mixed or single supply is a heavily litigated area of VAT. If you are unsure of the VAT treatment for your supplies, then please contact the Indirect Tax team below.
