New rules for VAT on food sold by caterers will cause major confusion among contractors, legal experts have warned.

Alan Connell, VAT director at law firm Eversheds, said the redefinition of "premises" following a landmark legal victory by Compass has created a grey area in the law.

Under previous rules, sandwiches sold by caterers were not considered as "take-away" and therefore exempt from VAT because their "premises" were taken to mean the entire client site. Sandwiches, in addition to cakes and fruit, were considered as eaten on site and therefore subject to the tax.

Compass won a change in the law in June after convincing the High Court that its retail points at the BBC were premises in their own right. But Connell said the problem now arises when deciding what is "on" and "off" site. "The law is not explicit. Does a seating area a few metres from the retail space mean that you are off site?" he asked.

According to Vaughan Chown, VAT director at consultancy Vantis, selling sandwiches to clients in locations like Earls Court and Wembley would be problematic because of a lack of guidance from HM Revenue & Customs (HMRC). "It's unclear, but I would argue that if you bought a sandwich from a retailer at Earls Court and ate it as you walked round an exhibition, then you are off the premises," he said.

Caterers are delaying making changes before HMRC provides further clarification.

Andrew Martin, group finance director at Compass Group, said: "Until that detailed guidance is issued and we can develop our own policy and guidelines, we must treat VAT consistently across all our locations, in line with current regulations."

An HMRC spokesman said: "We'll be issuing further guidance shortly when we update VAT notice 709/1."

VAT liability

Zero-rated food

• Sandwiches, biscuits, cakes (including chocolate cake), fruit, toasted panini and baguettes, hot and cold sausage rolls, milk drinks.

Standard-rated food (17.5%)

• Crisps, nuts, sweets, chocolate, chocolate biscuits, alcohol, ice-cream.

By Tom Bill

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