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Cafes and Sandwich Bars ‘Unwittingly Underpaying VAT’

Cafes and Sandwich Bars ‘Unwittingly Underpaying VAT’

Cafes and sandwich bars around the country could be underpaying their VAT to a significant extent without realising because their staff are unaware of relevant rules on the subject.

That’s according to the independent VAT consultant Neil Warren, who has highlighted the issue of businesses selling cold food that’s then eaten on their premises without bringing VAT charges into the equation.

Writing for Accounting Web, Mr Warren has suggested that the issue is primarily that cafes and sandwich shops often overlook the fact that when people ‘eat in’ then they, as a business, ought to be paying VAT and adding corresponding charges to their customer’s bill.

What’s happening is effectively that cold food items are being incorrectly zero-rated for VAT purposes by shop assistants who don’t realise or forget that they should be charging people extra when they dine in.

In the context of a single transaction, the amounts involved will only be 70 pence per item or thereabouts but once extrapolated out to reflect what’s happening across the country then the reality could be that HMRC is missing out on some very significant sums of money each year.

By way of a not very scientific but perhaps revealing study, Mr Warren recently bought a cold sandwich and ate in at five different cafes over the course of a week and found that only in two of them someone asked whether he was intending to eat his sandwich on the premises or not.

The focus in these contexts is generally on cold food items and their costs because hot drinks are always standard-rated for VAT purposes.

Mr Warren has warned that while innocent errors made by staff will generally be the cause of VAT underpayments in these scenarios, it will be businesses and their owners left with financial headaches if HMRC were ever to investigate them.

“My key message is that although the problems I observed are being caused by staff errors, it is the business owners who would pay the penalties should HMRC investigate,” he wrote in his recent article on the issue.

David Tattersall
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