This is a Tape UK VAT guide for small business owners of UK cafes, restaurants, bakeries and caterers.
Let's kick off with a few key points:
- You charge VAT at 0% on zero rated products. For example, the sale of coffee beans is zero rated.
- You charge VAT on standard rated products. Hot drinks are always standard rated.
- The standard rate is 20%.
Food and drink for human consumption are often zero rated when supplied by a retailer. But food and drink are usually standard rated for VAT when provided as part of a catering service.
Meals and drinks served hot or consumed in a cafe or restaurant are often standard rated.
But some cold or takeaway food and drinks can be zero rated.
There are lots of exceptions.
VAT on Food and Drink
Catering is always subject to VAT at 20%
When an order meets HMRC's criteria for catering, it is standard rated.
How It Works?
Sales in the course of catering are subject to VAT.
This includes catering for a wedding, delivery of ready-to-eat meals, or the provision of packed lunches. However, meals that require further preparation are not deemed to be catering sales.
Preparation can mean as much as reheating, and as little as arranging on a plate. This does not mean it's automatically zero rated.
Next, is your product consumed on your premises? If so, then you need to charge VAT.
Your premises includes all chairs and tables within your restaurant area, both inside and outside, as well as shared tables reserved for consumers (like shared tables in a shopping mall).
Public benches and airport lounges do not count as your premises.
If you've come this far, then it's clear that you're selling takeaway food or drinks.
Are these food and drinks hot when provided to your customers? Hot is defined as being greater than the ambient temperature, but there's no nit-picking here
- HMRC state that it is obvious whether food is provided hot or not.
Being hot is the first precondition for charging VAT on takeaway food. You must also meet one of the following five tests:
- Is it heated for the purposes of being consumed hot? Hot coffee, burgers and pizza are all designed to be consumed hot.
- Is it heated to order? This happens when you reheat something when ordered, like a prepared panini.
- Is it kept hot after being cooked? Food cabinets and hot-dog hot-water trays all count.
- Is it provided in heat-retentive packaging? Plastic containers are not necessarily designed to keep food warm.
You can argue that they are used to keep food sealed and air-tight. But foil lined packaging is quite clearly designed to keep food warm.
- Is it marketed in a way that indicates that it is hot? Putting the word 'hot' or 'roasted' in the name will suffice.
Food and drink served hot that meet any one of the above tests is subject to VAT.
How To Clarify That Your Food Requires Further Preparation Or Is Not Served Hot
1. Include reheating instructions with your takeaway meals
2. Don't sell meals in foil lined containers
3. Allow hot food to cool naturally, though you can keep it at a minimum temperature for hygiene reasons
Cold Takeaway Meals
If your selling cold takeaway meals or you do not meet one of the conditions for hot food, then congratulations - your sale is probably zero rated.
But, some products are specifically listed as standard or zero rated by HMRC.
Exceptions That Are Standard Rated
- Ice cream
- Alcoholic beverages
- Other beverages like juices, smoothies, bottled water and sports/energy drinks (Innocent tried to argue that smoothies were liquified fruit salads - but failed)
- Potato crisps, savoury popcorn, roasted or salted nuts and some other savoury snack products
- Products for home brewing and wine making
Exceptions That Are Zero Rated
· Baked Alaska, cream gateaux, mousse
· Cakes, chocolate spreads, non-chocolate biscuits, toffee apples, candied peels, some traditional Indian, Pakistani and Japanese desert delicacies
· Alcoholic dessert jellies (but not frozen jello-like shots), rum babas, fruit preserved in alcohol
· Ice coffee, ice tea, milkshakes, bovril
· Vegetable based snacks and crisps, roasted pulses like chickpeas, twiglets, all unshelled nuts
VAT on All Hot Food and Drinks?
Food or drinks that are supplied hot need to meet one of the tests to be standard rated for VAT.
These tests are:
1. Is it heated for the purposes of being consumed hot?
2. Is it heated to order?
3. Is it kept hot after being cooked? Food cabinets, hot-dog hot-water trays, and even meat pie all count.
4. Is it provided in heat-retentive packaging? Plastic containers are not necessarily designed to keep food warm. You can argue that they are used to keep food sealed. But foil lined packaging is quite clearly designed to keep food warm.
5. Is it marketed in a way that indicates that it is hot? Putting the word 'hot' or 'roasted' in the name will suffice.
VAT on Cold Takeaway Food?
Cold takeaway food is zero rated, unless it's on the list of exceptions. For example, ice-cream, orange juice, potato crisps and most items of confectionery are specific exceptions that are standard rated.
VAT on Beverages, Cold Drinks and Non-Alcoholic Drinks?
Most cold drinks are actually standard rated - including juices, smoothies, bottled water and non-alcoholic beverages.
The main exceptions are cold tea, cold coffee and milkshakes, which are specifically zero rated.
VAT on Ice Coffee?
As long as it's consumed away from your premises, iced coffee, iced tea, and milkshakes are zero rated. But if it's eaten in then you have to charge VAT, because it counts as a sale in the course of catering.
VAT on Chocolate Brownies?
No, brownies are deemed to be cakes, and are zero rated whether they are chocolatey or not.
VAT on Service Charge?
If mandatory, then yes. If encouraged, discretionary or voluntary, then no.
VAT on Pastries?
Croissants, for example, are often sold cold. Cold, takeaway croissants are zero rated. However, if you keep pastries warm - perhaps in a heated cabinet - then they are standard rated for VAT.
VAT on Condiments?
Takeaway condiments are not subject to VAT. This is because they typically require preparation or a serving bowl.
VAT on Meal Deals, Discounts Or Mixed Rate Sales?
Single sales transactions - made up of items with different VAT rates - are usually called mixed supplies for VAT.
You can split the price between different supplies - a process known as apportionment. And you should try to work out the tax value of each part of the combined product.
There is no special way to apportion products. Your calculation must be fair and justifiable.
Which means it's up to you!
Here's an example.
Let's say you sell a cheese sandwich and a pack of crisps for a combined takeaway meal deal price of £3.50. Individually they sell for £3.00 and £1.00 respectively. You must determine how each component adds up to £3.50. So you might say the meal deal is a sandwich for £2.75 and a pack of crisps for £0.75. The sandwich is zero rated and the crisps a subject to VAT at 20%.
What Foods Are Standard Rated?
The vast majority of your sales will be standard rated as the most of the food and drink you sell will be consumed on your premises. However, if you sell foods and beverages for takeaway, then you can use this table to work out how much VAT to charge on those purposes.
- Potato Crisps - Standard rated
- Pastries - Zero rated
- Hot drinks (teas, hot chocolate coffee) - Standard rated
- Squash, Carbonated beverages and other soft drinks - Standard rated
- Alcoholic drinks - Standard rated
- Ice cream - Standard rated
- Sweets - Standard rated
- Cake - Zero rated
- Sandwiches - Zero rated
- Salads - Zero rated
- Fresh Fruit - Zero rated
- Coffee beans or tea bags for customer to use at home - Zero rated
- Fresh Bread - Zero rated
- Chocolate covered biscuits - Standard rated
- Ginger bread men - Zero rated
- Chocolates - Standard rated
- Mineral or bottled water - Standard rated
- Vegetable crisps or corn based crisps - Zero rated
Social Distancing During Coronavirus
Our clients have adjusted the way they work as a result of coronavirus-induced social distancing measures. For example, many restaurants and cafes are ramping up takeaway services.
Customers will benefit from cheaper prices if you can zero rate your sales and legitimately avoid charging VAT.
It's worth reviewing your sales system to identify items that can be zero rated.
If you require anymore information then our dedicated team at Tape UK is always on hand to help!