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Outdoor eating – and a side dish of VAT

Restaurants and cafes could be in for some nasty VAT surprises when it comes to diners eating outdoors.

That’s the warning from Matt Orange, Client Manager here at Dyke Yaxley, who warns business owners need to be prepared as lockdown restrictions continue to ease.

“It’s been a challenging time for all hospitality businesses given the Covid-19 situation, and they have been delighted to see so many customers flocking to restaurants and cafes after the rules changed to allow them to eat outdoors.

“But for these types of businesses, there could be some nasty VAT surprises in store depending on whether the meal is class as eat-in or take-away.

“Given the current restrictions, almost all food has to be served outdoors, but not every meal eaten outdoors can be classed as a take-away for VAT purposes.”

Matt says as a general rule, restaurants must charge VAT on everything except food that is cold and taken away.

“Takeaway vendors do not need to charge VAT unless the food is hot and/or the customer would like to eat in a designated seating area.”

Matt says the key point to consider was whether the outdoor area was classed as part of the business premises.

“This is not always as straight-forward as it sounds, and there have been several VAT cases on this topic heard in the courts over the years.

“An area set aside for your own customers using your own tables and chairs is most certainly likely to be classed as the business premises and so should be treated as ‘eat-in’ when it comes to VAT calculations.

“Given that the hospitality industry is already benefitting from temporarily reduced rates of VAT, the chances of HM Revenue and Customs inspecting the records these businesses keep are higher than ever.

“So it’s vital that business owners apply the correct rate of VAT to their sales at all times and that they are prepared for any potential VAT enquiry that may occur.”

Matt Orange, Client Manager