Why is Wirral Council being charged £49,047.35 a month for VAT on school meals by Edsential Community Interest Company?
Updated 15#47;8#47;16 following responses by Edsential and Wirral Council
Below is an invoice from Edsential Community Interest Company to Wirral Council for school meals in December 2015 and operation charges from December 2015 to March 2016.
I’m puzzled as to why the school meals element for £245,236.75 attracts VAT at 20%, when Her Majesty’s Revenue and Custom’s guidance note on VAT on school meals would seem to (at least by my reading) state that school meals (apart from those to staff and visitors) are exempt from VAT.
Therefore I’m puzzled why this element of the bill attracts VAT of £49,047.35, when surely the amount should be different than this (if it was just for staff and visitor meals)?
However Wirral Council’s paid the VAT on the school meals charge from Edsential. This is per a month (and some of December no school meals will be served because of the Christmas holidays), so over the year it means the VAT could be a few hundred thousand?
This is well below the level of materiality or triviality which is why it probably doesn’t get picked up routinely, after all Edsential is a relatively new arrangement.
But when the taxpayer is funding free school meals, what’s the correct tax situation?
Both Wirral Council and Edsential have been in touch since this article was written and their responses are below.
Wirral Council reclaim the VAT back from HMRC and state that no VAT is charged to pupils for school meals, Edsential claim the VAT they charge Wirral Council is correct.
Updated 13/8/16 A reader, h/t to Nigel Draper points out this explanation about how VAT on school catering works from a different local authority.
Updated: 12/8/16 some replies on Twitter state that if Wirral Council was providing these services to schools then the catering services would be exempt from VAT, however the issue of whether schools are exempt from paying VAT on catering services are in related to a limited company owned by two local councils rather than the Wirral Council itself.
Ian McGrady (Managing Director) of Edsential has responded with, “As a matter of policy we do not comment on commercially confidential relationships with our customers. However, I can confirm that our management of VAT complies with all HMRC guidance appropriate to our status as a Community Interest Company.”
Peter Molyneux of Wirral Council confirmed that when Metro Catering (an arm of Wirral Council) were providing a school meals service then VAT was not chargeable. Now Wirral Council contract with Edsential, Edsential charge Wirral Council VAT which Wirral Council then claim back from HMRC.
So Wirral Council do pay the VAT, but then claim it back on their monthly VAT return.
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