Food processing services

By Tolley
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The following Value Added Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Food processing services
  • Background
  • Zero-rated processing
  • Standard-rated processing
  • Abattoirs
  • Agriculture and Horticulture Development Board (AHDB) levies

This guidance note provides an overview of the VAT treatment of food processing services.

Background

If a business provides food processing services in connection with someone else’s goods and that service produces a new zero-rated good then the processing services can also be zero-rated. New goods are produced when the processing work undertaken alters the essential characteristics of the goods. See the following examples provided by HMRC in Notice 701/40 , para 1.5

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  • a)‘The process of smoking salmon is zero-rated, as the new product, the smoked salmon, is a new zero-rated food item. The smoked salmon is immediately edible, making it distinct and different following the process of smoking.
  • b)The process of smoking cod is standard-rated as it does not produce a new zero-rated food item, as the smoked cod is not immediately edible, and the essential characteristics have not changed following the smoking.’

If the processing services do not produce new goods or the goods were not zero-rated, then the processing services cannot be zero-rated and VAT must be charged on the services provided.

When determining whether a new product has been produced as a result of the processing work, businesses are encouraged by HMRC to consider:

  • the size and shape of the new product
  • the new product’s appearance
  • the composition of the new product
  • use of the new product
  • readiness to use or eat the new product
Zero-rated processing

The table below provides examples of the types of processing work that HMRC states in Notice 701/40  can be zero-rated for

More on Zero-rated supplies: