VAT Guidance – Catering Contracts

November 2011 Greg Watson

Background

Contracts entered into with external catering suppliers can be complex and can lead to VAT management issues.

Important that Input VAT and Output VAT are not netted off

Also important for correct financial reporting that income and expenditure are not netted off.

VAT Efficient Contract Structure

Contractor bills school for service with VAT at standard rate – acts as principal

School recovers VAT paid in the usual way. Contractor may collect income from pupils – acts

as agent Supply of meals by school incidental to

education, hence outside scope of VAT and available to offset cost of the meals to the schools budget.

Schools Responsibilities

Correct amount of VAT should be declared to HM Revenue & Customs.

Particularly for Output VAT on staff/visitors meals.

Cost of Staff free meals needs to be coded to A252/E08.

Suppliers responsibility to provide correct and fully compliant VAT invoice.

If insufficient detail then should be requested.

Receipt of catering income:

Where school receive catering income directly, staff/visitor income should be credited to A872 so that Output tax is collected. Responsibilities fulfilled.

Where the catering company acts as agent by collecting income on school’s behalf a change in the way we process the invoice is required.

Accounting Implications:

Please refer to Appendix A. Schools pay through Accounts Payable

£3,696.72 & VAT £1172.08 – Total £4,869.03

Need additional journals to account for Output VAT and full expenditure and income received

Accounting actions :

Enter invoice figures in ‘Catering Calculator’

Pass two Cash Book Journals and reconcile bank entries

VAT Submittal now includes Output tax Correct VAT claimed and paid to HM

Revenue & Customs

Summary:

Schools accounting responsibilities now fulfilled by adopting amended process

Individual SFOs will work with schools to instigate where required

Information available on hgfl.org.uk