Compass victory promises cheaper sandwiches for staff

Compass, the caterer, has won a key judgment on the VAT treatment of in-house catering facilities that could see employers recovering tens of millions of pounds of tax on employees' sandwiches.

The case could also see sandwiches, which are provided at in-house facilities, offered more cheaply, advisers have suggested.

The Court of Appeal ruled earlier this month that supplies made by Compass to the BBC in respect of catering outlets at Television Centre were not subject to VAT.

Cold food is zero-rated for the purposes of VAT, but food provided 'in the course of catering' is not. HM Revenue & Customs argued that the food Compass provided was a catering contract rather than the simple provision of cold food.

Frank Sangster, an indirect tax partner at KPMG, said: 'I have one client with four to six thousand employees who have a claim for £2-3m. It is a case that spans across industry groups.'

It was unclear, however, who would benefit from the repayments. Sandwich prices at catering facilities would be likely to be subsidised anyway under set pricing structures, meaning that if the case is won, it might only make it cheaper to provide the sandwiches, Sangster said.

The Court of Appeal ruled two to one in favour of Compass in the case, with repayments of tax paid likely to go back over three years.

The court rejected the argument that there was any difference between the sandwiches being supplied by Compass in this situation and those supplied by nearby outlets.

'When supplies of sandwiches are made at the Compass food outlets the individuals to whom the supplies are made obtain nothing more than, and nothing different from, what could be supplied in another part of the BBC Television Centre, such as the newsagents located in the building, or close by in the High Street supermarket or sandwich shop.

'Viewed objectively the supplies of sandwiches made to individual customers are not 'in the course of catering'. The individual customers are simply buying and being supplied with sandwiches in the same way as if they were buying them and being supplied with them zero rated from another available retail outlet.

'It makes little sense that they should be made liable to pay VAT in the one case, but not in the other,' Lord Justice Mummery, one of the appeal judges, said.

A spokesman for HMRC said that it had not yet made a decision whether or not to appeal the case.

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