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Must a bed-and-breakfast ( B&B) include VAT on the cost of their meals?

Tuesday, 26 May 2015   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

Q: I have a client who operates a B&B (bed and breakfast). Fees are structured on a Bed & Breakfast or Bed only basis, all VAT inclusive. The VAT is shown separately on the invoice. Sometimes a guest will order an extra breakfast, which is also charged at a rate inclusive of VAT. 

Recently, a tour operator complained that the breakfast should be excluding VAT. The tour operator deducted the VAT from their payment transfer with a comment, I quote: "it is unethical and against Industry Standards to charge VAT on any meals including breakfast". 

Please advise what the VAT law is for charging VAT on meals such as a breakfast. If someone orders a glass of milk only, where milk is subject to VAT at the zero rate, how would the B&B owner charge for this glass of milk? What about any other zero rated food item served with or for breakfast. As far as I understand the entire breakfast buffet is VAT-able, irrespective if some items in the buffet are VAT at 14% or VAT at zero rate, such as fresh Fruit & Vegetables.

A: The tour operator who deducted the VAT from their payment was not correct.  The principle is that any supply by a vendor, made in the course of its enterprise, is a taxable supply.  From the facts the supply is not an exempt supply and we don’t deal with that.  

Even where the supply qualifies for the rate of zero per cent, the supply is still a taxable supply.  The tax is then charged at 0%.  

With respect to milk the rate of zero per cent doesn’t apply – see section 11(1)(j) of the Value-Added Tax Act and Part B of Schedule 2 to the Act.  Paragraph 2 of the Schedule provides that the rate of zero per cent does not apply where any goods mentioned in paragraph 1 of the schedule are supplied in the course of carrying out any agreement for the furnishing or serving of any meal, refreshment, cooked or prepared food or any drink, as the case may be, so as to be ready for immediate consumption when so supplied.  Milk appears in item 15 of paragraph 1.  

We therefore agree with your understanding of the issue.  

Disclaimer: Nothing in this query and answer should be construed as constituting tax advice or a tax opinion. An expert should be consulted for advice based on the facts and circumstances of each transaction/case. Even though great care has been taken to ensure the accuracy of the answer, SAIT do not accept any responsibility for consequences of decisions taken based on this query and answer. It remains your own responsibility to consult the relevant primary resources when taking a decision.



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