A university was able to zero-rate the food element of a catering contract that involved a third party. This is yet another case showing the problems of VAT when three or more parties are involved.
The university usually bought all its food supplies from a wholesaler. This includes food for meals for staff, students and guests. The University used a private caterer for much of its catering activities. Most of the food is zero-rated.
Because of a contractual issue, the university can no longer buy goods directly from the wholesaler. Instead it adopted an arrangement where it still orders the goods from the wholesaler who does not invoice the university directly.
The wholesaler invoices the caterer who invoices the university at cost. The caterer sends a separate invoice for its administration charge. It is accepted that this charge is standard-rated for VAT.
The arrangement still benefits the university which can acquire the food using the wholesaler’s discount.
HMRC argued that the supply from the caterer to the university was part of its standard-rated supply of catering. It argued that to separate the supply of food from catering was artificial.
In short, the issue was whether the caterer was making one supply or two.
The tribunal held that the wholesale arrangement could be treated as a separate contract from the catering. It was not an integral part of catering, as the university could buy the food from another source, as indeed it had done.
The case report can be downloaded from here.
Olive Garden Catering Co Ltd [2018] TC 6595 [18.09]