Olive Garden Catering Company Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 12 July 2018 |
| Neutral Citation | [2018] UKFTT 393 (TC) |
| Date | 12 July 2018 |
| Court | First-tier Tribunal (Tax Chamber) |
[2018] UKFTT 0393(TC)
Judge Heidi Poon, Mr Ian Malcolm
Mr Philip Simpson QC, instructed by Maclay Murray & Spens LLP, appeared for the appellant
Mrs Sharon Spence, Officer of HMRC, appeared for the respondents
Value added tax – Food and labour supplied to University – (1) Whether a single and composite supply in the course of catering – Yes – Food supplied under wholesale arrangement for procurement purposes – (2) Whether a separate supply of food – Yes – (3) Whether catering staff wages concession applies – Tribunal lacks jurisdiction to direct exercise of such discretion – VATA 1994, Sch. 8, Grp. 1, Note (3) – Company's appeal allowed in part.
The First-tier Tribunal (FTT) partly allowed the appeal against HMRC's decisions. The FTT held that the fact that OGC staff processed the food at the university's premises turned that supply by OGC into “hot food”, which was standard-rated catering. However, the procurement of food from wholesalers was a separate and zero-rated supply by OGC, which was not subsumed under the catering supply.
Olive Garden Catering Co Ltd (OGC) supplied food to the University of Aberdeen (UOA) and appealed against:
- an assessment to output VAT on procurement supplies made in the periods 09/10 to 06/12 (the VAT assessment); and
- HMRC's rejection of its VAT repayment claim for the periods 09/11 to 09/12 for output VAT purported to have been incorrectly charged by OGC (the refusal decision).
The first and successful appeal concerned food orders placed by UOA with OGC's wholesalers. OGC paid the wholesalers for the orders placed by UOA, and recharged UOA at cost as a zero-rated supply. HMRC assessed OGC to VAT.
The second and unsuccessful appeal concerned the supply of food by OGC and served at UOA premises, on which OGC claimed it had incorrectly charged output VAT. Also, OGC argued that output VAT was not due on its staff costs, because the “catering staff wages concession” applied to allow the labour to be supplied without VAT being added.
The central issue was whether the supply of food and staff by OGC to UOA was a single supply of catering services at the standard-rate (HMRC's case), or that the main supply was for food at the zero-rate, with the supply of staff being a separate supply and eligible for the staff wages concession (OGC's case).
The FTT considered the following issues:
- whether the food and labour supplied by OGC was a single and composite supply in the course of catering;
- whether the food supplied by OGC under the wholesale arrangement was a separate supply of food; and
- whether the staff wages concession applied.
In March 2005, UOA closed the Central Refectory, which was redeveloped into the Hub to provide a space on campus for students and staff to eat, drink, shop and socialise. The Central Production Unit (CPU), which formed part of the Old Central Refectory, was shut to create more space for the Hub. The closure of the CPU had two consequences: (1) UOA lost its on-site cooking facilities and (2) redundancies resulted in the loss of staff, who had produced food for evening meals, in cooking breakfast and brunch and at the restaurant Zeste, producing buffet and assisting at events like weddings.
OGC contracted with UOA to take over supplying the food.
Food was supplied by OGC at cost; the contract provided for a fixed profit, which was spread over 12 months and invoiced monthly. Annual fees for management and administration were invoiced monthly. Food costs were food provisions (chips, frozen vegetables, bakery, confectionary, crisps, etc.) ordered from suppliers by UOA. If this was done under a contract that the supplier had with OGC, the supplier first sent the invoices to UOA for checking. Then UOA sent the approved invoices to OGC for payment. Then OGC paid the suppliers and invoiced UOA every month. Separate invoices were rendered by OGC for the raw ingredients used to produce the dishes served in the Zeste restaurant. Function costs were additional costs for food and labour in relation to special events and functions. Labour charges were based on a Schedule, which was agreed annually with OGC. Invoices were rendered monthly to cover the costs of OGC's staff: (a) at OGC's CPU producing the cook chill food and (b) working on UOA premises at: (i) Sunday brunch; (ii) evening meals at the halls of residence and (iii) the Zeste restaurant kitchen. Additional labour covered an additional chef, who was not included in the Labour Schedule. Labour and food costs were invoiced separately, so that UOA could manage its cost centres and budgets.
At an early stage, OGC argued that its unique approach to providing food allowed it to be takeaway and not “supplies in the course of catering”, as the food in question was prepared offsite at OGC's CPU and not where it was eventually heated and served (para. 86 of the decision).
HMRC argued that (1) OGC's role was wider than merely supplying food; (2) OGC worked in partnership with UOA to improve standards and OGC supplied catering, which is standard-rated under VATA 1994, Sch. 8, Grp. 1, Note (3).
Later OGC argued that it had been engaged under one contract to provide multiple services, which can be separated into discreet categories's comprising (para. 111 of the decision):
- the supplies of (i) management services, (ii) staff, (iii) food excepted from zero-rating, (iv) food which is further prepared by OGC and (v) food from the CPU which are standard-rated; and
- the facility for UOA to order food directly from OGC's suppliers was disbursements and outside the scope of the contract.
OGC argued that the contract was agreed on the basis that its only profit was the Fixed Profit Contribution and all other charges were passed on at cost or anticipated cost with no additional mark-up.
OGC used staff solely to serve UOA. Thus, OGC argued (at para. 116 of the decision) that it qualified for the “catering staff wages concession”, as HMRC's Manual on taxable persons states at : “Provided the contractor pays the wages of its own staff who are employed solely to serve that particular client and clearly identifies their wages in the profit and loss accounts and/or invoices to the client, the staff wages element may, under the terms of the “catering staff wages concessions”, be charged to the client without the addition of VAT.”
At the FTT, OGC's case as regards both the first and the second appeals was as follows:
- although the supplies were the subject of a single, framework contract, they were separate supplies;
- food was supplied to UOA at premises other than those at which it was to be served to consumers (students and staff). It was not supplied ready to be served, and needed to be prepared before serving to consumers;
- the staff supplied were involved in preparation from premises other than to those to which food was delivered, and using equipment provided by UOA and worked under supervision of UOA staff. They did not prepare all the food that OGC delivered to UOA; neither was all the food delivered by OGC prepared by the staff so supplied; and
- the charges for food and staff were calculated and invoiced separately.
The FTT held that the economic and commercial reality is the starting point when deciding the nature of the supply (para. 156 of the decision). Also, the FTT held that the contracts reflected the economic and commercial realities of the transactions between OGC and UOA (para. 165 of the decision).
The FTT rejected OGC's submissions that the CPU food costs represented a stand-alone zero-rated supply of food, and that the labour costs in regeneration were merely incidental to the main supply of the cook chill food. The commercial and economic reality was that the regeneration service was an integral part of the supply of the cook chill food, to be taken together as a single supply in the course of catering (para. 181 of the decision). The commercial and economic reality required that OGC staff carried out the regeneration of the cook chill food, and that was the crucial factor which turned the supply of the CPU food into a supply in the course of catering (para. 183 of the decision).
The FTT held that the supply of the CPU food cannot be separated from the supply of labour in the regeneration process, as OGC argued. The crucial fact that OGC staff were engaged in the process of regeneration of the cook chill food produced by OGC turned OGC's supply of the CPU food into “hot food”.
The package of the services to “fill the gaps” consisted of: (1) the production of the cook chill food at OGC's CPU, (2) the regeneration of the CPU food at UOA's premises ready for consumption, and (3) ancillary and management services in relation to cleanliness and HSEQ audits for food safety. These components were taken together as a single composite supply (para. 185 of the decision).
The FTT held that the food supplied in connection with an occasion or an event or at a restaurant is a supply “in the course of catering”, and that would have been the case even when the supply was made, from production to consumption, by UOA in-house staff. There was no difference in the nature of the food supply in connection with functions and at Zeste after contracting with OGC to take the supply out of catering (para. 188 of the decision).
OGC tried to separate the food supplied at Functions and Zeste from the labour costs in connection with these supplies. However, the FTT found no satisfactory reason to separate the labour and the food supplies rendered at functions, wvents and Zeste (para. 192 of the decision).
The FTT concluded that the food supplies made by OGC to UOA were made in the course of catering, whether it was at the halls of residence, the Hub, or at functions and Zeste. The labour costs could not be separated from the...
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