Doing books for a small cupcake co, are the cakes subject to VAT? I understand as a food they are not but they have been decorated at the direction of customers and are wrapped in holders and boxes which are subject to VAT. Any input would be appreciated!
I don't think this a simple one. I could see a potential argument that the seller is supplying a catering service which would be subject to vat. I'm not an expert by any means but I had a long conversation with the ICB about this.
One of my client sells sandwiches at their premises but also supplies the same for meetings. I was advised that vat would apply if the client supplied a "tray" of sandwiches for a meeting but not if they sold e.g six pre packed sandwiches individually to each person.
I dont think it's a huge leap, that if your client supplies 20 cakes for a wedding they are really offering a catering service.
Have a read at Vat notice 709/1 and be prepared to pull your hair out
-- Edited by ADAS on Sunday 8th of January 2012 02:40:25 PM
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Tony
Responses are intended as outline only. Formal advice should be sort from your Institutes Technical Department or a suitably qualified Accountant.
Vat on food is sheer lunacy. I helped out at a butchers where the chicken was vat free, the bacon was vat free, if you wrapped the bacon round the chicken it became a luxury food item and therefore liable for vat.
I understood that cakes supplied are at the standard-rate, but if you bought say a wedding cake then its zero-rated, I think it's because you have an inedible decoration on top. Certain items thats coated with chocolate is at standard rate.
Chocolate coated biscuit is at standard -rate where as a chocolate coated cake is zero- rated.
If they are that small a company would they even be registered for VAT. All the people I know making cakes as business make pocket money really so barely pay any tax, let alone VAT. Am glad though, as others have put it, food and VAT is extremely complicated.
It isn't simple. It depends on what the cake looks like as well. It's nuts (sorry).
I suggest the client goes to the relevant small food business forums and asks, and also get it in writing from HMRC. It could easily be disagreed with later, but then there is a record of the business owner trying to do the right thing.
It's more complicated than even home office expenses.
