Will your catering contractor pass on their VAT savings?

The Government announced a temporary reduction in July for VAT on catering supplies from 20% to 5% until 12 January 2021. This VAT reduction should apply to catering sales that currently attract standard VAT such as those for staff and visitor meals. However, your catering contractor is not obliged to pass on this discount to staff and visitors by reducing the cost of the meals they purchase.

The impact of Covid-19 on the contract catering industry, especially those that specialise in education catering is undoubtedly significant. Contractors base the profitability and therefore sustainability of a catering contract on the number of meals they are able to sell to staff and students but with no staff and students on site there are no sales!  Even as the education sector prepares to re-open for the new term, the number of students and staff on premises each day may still be significantly lower than they were this time last year. Coupled with the potential impact of alterations that may be needed to the catering service to remain ‘Covid secure’, catering sales could still be affected for some time to come. Therefore, this reduction in VAT may go some way to helping to maintain a sustainable catering service on your premises.

How commercially viable your catering contract is going forward will depend on a number of factors. Should your catering contractor be seeking to re-negotiate the commercial terms of your contract, discuss with them what their approach is in relation to this VAT saving and the mitigating impact it might have on the contract financials. Should your catering contract be stable, your contract might be in a position to pass savings onto your staff by way of tariff reductions. Further advice on procurement activities to prepare for re-opening of schools and colleges, including negotiating and managing contract changes can be found in our Procurement activities to prepare for re-opening of schools and colleges blog article.