VAT on school dinners?

benjacksmum

HELP! Our son`s junior school was dissatisfied with the standard and quality of their school dinners (currently provided the local authority`s catering services) and asked DH and I if we were interested in putting in a quote for supplying catering for the school dinners. DH has been a Head Chef all his working life and took the challenge on. School had to get three quotes in so they asked us, gave local authority a chance to improve their deal, and they also asked Initial Services. We beat them all and the school want us to sign contracts this Thursday. However, a niggling feeling came to me about VAT so I decided to check it out. At the moment, there is only a 33% uptake on school dinners at our school, but should we improve this to approximately 50% uptake then the turnover would mean we would be in the VAT threshold.
I was hoping that as we are supplying a school we would be exempt but I have been onto the HMRC this afternoon and after much to-ing and fro-ing between people who didn`t seem to know what they were doing, they decided that it would be a standard rated service as we are providing food and we would indeed have to charge VAT on school dinners!!! I am completely shocked.
Apparently because the previous providers are part of a local authority they are classed as an `eligible body` and are therefore exempt but because we are a private business we have to be standard rated. What is more unfair is that we are charging the school LESS than the local authority were AND we are cutting the school into our profits (which wasn`t done before). The profits are not huge, we would make enough to pay our wages (a modest 10 -15k each) and that`s it.
The VAT office said they referred to notice 701/30 section 8 when making their decision but I was trying to get them to have a look at 17.1 of the same notice as I believe we are classed as an exemption?

Please can somebody spare me the time to have a look and see what you think because if we have to charge VAT on school dinners, not only would there be a outcry from the parents but I would just feel like giving up on the whole idea.

Please can somebody help.

Many thanks in advance
benjacksmum (and dad too!)

Lifeisbutadream

I am by no means an expert, but I would have thought that the school would be able to claim the VAT back anyway.. I might be completely wrong though so dont quote me on it!

If you did become VAT registered, there would be some benefits to you, such as being able to claim back the VAT on your company van, or any equipment that you buy (provided that you pay VAT on it). When we went VAT registered we were terrified that we would lose business, but in fact it made us even busier than we were before, because we looked more professional.

Also, dont count on tax office always being correct! I have been told wrong answers before - a good accountant might be a better person to help (someone on here will know, no doubt)

Dont give up whatever the outcome re VAT - if you do a good enough job getting the uptake to 50% then the school and parents will be pleased anyway - they are hardly going to get rid of you then.

benjacksmum

Hi, thanks for your reply.

I was more shocked that a meal supplied to a child whilst in an educational establishment was standard rated.
However, should the local authority services be supplying them, then it's exempt,, purely because they are a local authority. That is the bit that also doesn't seem fair, especially when they are making crap meals. The other day my son was down for 'meat' pie which he could have with mushy peas (which he doesn't like) or rice (cos the other option was chilli). He ended up just having the pie on its own and that was it. Currently parents are paying £2 per day for this pleasure of which the LA is only spending 47p on ingredients. We can do a far better job, we'd put between 60-70p into the ingredients and the quality and choice would improve as well as being able to bring the price down to £1.90.
Vat offices argument was that we are a profit making organisation, but you can't tell me that the LA isn't making a profit on school dinners at the moment.

badmumof1

At our school the kids dont get charged VAT but us staff do
Very nice meals at fab prices
£1.50 for meal, pudding and drink

Petmidget

I have read the applicable parts of the notice and i would say under the desired circumstances, para 4.2 says you arent an eligble body, para 8.2 states the intended supply is "closely related" para 8.1 says closely related supplies by non eligible bodies are to be standard rated.

The exceptions to thst would be unprocessed foods eg fruit, some random snacks and sandwiches if the pupil didnt eat them in a cafeteria. Plus a few other items, but in the main fully standard rated.

Sorry, but i guess this is the case with all the huge catering businesses that service schools. Surprising though, as the tax is largely forked out by the parents, not an encouragement to eat school dinners, another case of government depts not working to the same goal.

But you could try sneaky approach and be a NFP organisation (therefore able to 0 rate), set up a company limited by guarantee with you, husband and school as members. Put together a set of rules which in essence say you can set your own wages at a level of your choosing with agreement of all members (protecting your "profit") the school has the benefit of any surplus funds (the NFP bit) giving them their cut. Could be complicated and may not even work without research into any other barring factors.

Lifeisbutadream

benjacksmum wrote: »

Hi, thanks for your reply.

I was more shocked that a meal supplied to a child whilst in an educational establishment was standard rated.
However, should the local authority services be supplying them, then it's exempt,, purely because they are a local authority. That is the bit that also doesn't seem fair, especially when they are making crap meals. The other day my son was down for 'meat' pie which he could have with mushy peas (which he doesn't like) or rice (cos the other option was chilli). He ended up just having the pie on its own and that was it. Currently parents are paying £2 per day for this pleasure of which the LA is only spending 47p on ingredients. We can do a far better job, we'd put between 60-70p into the ingredients and the quality and choice would improve as well as being able to bring the price down to £1.90.
Vat offices argument was that we are a profit making organisation, but you can't tell me that the LA isn't making a profit on school dinners at the moment.

I was led to believe that the price of school dinners also included the cost of lunchtime staff (or 'dinner ladies' like it was in my day!) which was why the cost of the ingredients had to be kept low?

TBH I didnt know that schools were able to 'contract out' school dinners.. but I do wonder where they will pay for the staff?

benjacksmum

Lifeisbutadream - we would be paying out for the staff out of the £2. It is basically 65p for ingredients, 10p to school (rising to 15p) and the rest goes towards mine, DH's and other staff wages, (probably only need one to start off with as uptake is so low at the moment). My gripe is that if they are standard rated, then where do we find the 35p VAT element within the £2? It would have to be charged at £2 plus VAT to the school, which I know they can claim back but they have to find the money first.

Petmidget - Thank you very much for your time looking over the relevant notices. Could we not get away with the Exemptions on 17.1 of that notice, especially this bit:

4 The supply of any goods or services (other than examination services) which are closely related to a supply of a description falling within item 1 (the principal supply) by or to the eligible body making the principal supply provided -
(a) the goods or services are for the direct use of the pupil, student or trainee (as the case may be) receiving the principal supply;

Surely we are the closely related supply providing a service to the principal supply being 'education' (aforementioned description of item 1), for the direct use of the pupil receiving the principal supply?

Why does it have to be sooooo long winded! They certainly seem to try and catch you out with these notices, don't they.:eek:

Badmumof1 - Very interesting, thank you. Is your school contracted out to a private provider? Wow, what good value too.

Petmidget

4 The supply of any goods or services (other than examination services) which are closely related to a supply of a description falling within item 1 (the principal supply) by or to the eligible body making the principal supply provided -

I have highlighted the problem, you are not the eligible body, the school is. And you are not supplying the eligible body, as the meals are charged to the students.

I did look at you supplying the school and them charging the students, but there was a block to this, cant remember which section without revisiting the notice.

Savvy_Sue

I do not know if it would be worth contacting any other school catering services and asking what they have found / done?

benjacksmum

Petmidget - Thank you ever so much for your time spent on this. It does indeed seem I have to admit defeat on this one. VAT seem to have got it all sewn up haven't they?

Savvy_sue - I did actually manage to find somebody on the internet last night called Whole School Meals and sent them a cheeky email asking them if they had to charge VAT on their school meals. I didn't think I'd be a threat to them as they are in Kent and we are in West Yorkshire. I got a lovely email back from them saying:
For example we charge children £1.90 cost of the meal excluding VAT we then invoice our local authority for .33p per meal served, this we then have to send to the VAT man. The only VAT that we charge is for paying adults, this has to be added at the point of sale.
She also went on to say if ever there was anything else I needed just to contact them, which I thought was really nice of them.:D

So officially I have to wave my little white flag on this one and surrender to the fact that once we hit the £64k mark, we will have to register and charge VAT. Still shocked that it's not an exempt area though, don't think I'll ever shake that feeling off. I can understand charging working, tax-paying adults VAT but the thought of the VAT man wringing his greedy little hands and charging VAT on an essential midday meal for a child in a school aged somewhere between 3-11, am I on my own thinking this is madness? Especially when as Petmidget said, the government are trying to encourage children to take up school dinners. Sigh!

Angela.

Lifeisbutadream

Your not on your own thinking its madness, but I am very anti-VAT anyway - I dont think VAT should be added to school meals and I am shocked too - I think it should be at least reduced, if not exempt.

I wouldnt mind so much if the government were spending our hard earned cash on something worthwhile, but we all know thats not the case, dont we?