VAT & Food Nuance! (June 2026)

The Upper Tribunal's May 2026 decision in Queenscourt Limited v HMRC has significant implications for food retailers operating meal deal structures, overturning the First-tier Tribunal's 2024 ruling and finding in favour of the taxpayer.

The case concerns the VAT treatment of dipping pots supplied as part of a KFC meal deal. The central question was whether those dip pots formed part of a single standard rated supply of hot food, or whether they constituted a separate zero rated supply of cold takeaway food in their own right.

The First-tier Tribunal had found for HMRC, concluding that the dip pot was ancillary to the principal supply of hot food. Applying the typical consumer test, the FTT held that the overwhelming likelihood was that a customer views the dip as an accompaniment to the chicken and fries rather than an aim in itself. It also considered it fanciful to suggest a customer would purchase the meal deal solely to obtain the dip pot, particularly given it could be bought separately for 40p.

The Upper Tribunal has now overturned that reasoning. It found that the FTT had erred in law by treating the meal deal as a multiple supply that could itself contain a composite element - in this case, the hot food and the dip taken together. The UT's approach is that where a meal deal constitutes a multiple supply, each component must be analysed individually according to its own VAT liability. As cold takeaway food, the dip pots are correctly zero rated.

The practical consequence is material. Fast-food meal deals are not automatically treated as single standard rated supplies, and where a bundle combines items with different VAT treatments - hot food, cold food, confectionery - there is now a stronger basis for apportioning VAT liability across those components separately.

Food retailers and their advisers should review existing meal deal structures in light of this decision. The position on apportionment methodology and the treatment of individual bundle components will require careful consideration, and the interaction with HMRC's existing guidance will need to be assessed against the UT's reasoning.