The HM Revenue and Customs has set specific guidelines regarding how much VAT you can charge on food and drinks takeaway.
However, it should be considered that buying uncooked or unprepared food does not come under takeaway services. Such items which you have to prepare at home have 0% VAT.
All businesses in the UK should be registered with VAT. If you are just starting your catering or restaurant business, you should have a rudimentary knowledge of the VAT terms.
Continue with the following article to learn comprehensively about “Is VAT payable on takeaway food” and what are its rates and customs.
As stated earlier, the HM Revenue and Customs Department regulates the rules and obligations for VAT. There is a wide range of items, including food, drinks, healthcare, and cosmetics, on which VAT is applicable. In order to calculate VAT efficiently on Food or on other goods, use UK VAT Calculator to get accurate result.
However, the percentage of VAT is not the same for all items but significantly differs from product to product. Since our discussion is about VAT on food items, let’s discuss the food categories you should be paying VAT on.
Retail services include selling unprepared or uncooked food items directly to customers. Retail sales include food items sold in supermarkets, grocery markets, or departmental stores.
Most retail items (usually non-perishable and canned) are free of VAT charges. While some (usually perishable) products have very minimal VAT rates. However, this amount is not separately charged. Instead, it is included in the final cash receipt paid by the customers.
Owing to some misconceptions, VAT is also imposed on catering services. Catering is a business that involves providing food services to customers at remote locations, such as hotels or homes.
The catering businesses provide clients with freshly prepared food and drinks. Since these items are perishable, HMRC has made VAT charges mandatory for catering.
The VAT charges for catering are quite high. It is because, for catering services, you pay twice, once for the food portion and the second for the catering services.
The dine-in services are offered in most restaurants, markets, food, and cafes, which is the next category in our list and is not exempted from VAT. Therefore, VAT is also applicable to this category.
However, the VAT charges are different for all places and may differ. Therefore, you can estimate the VAT prices by remembering that the more posh the area, the higher taxes will be charged.
The HMRC describes takeaway as the food or drinks that are consumed outside the premises of the cafe or restaurant. To describe it simply, you order takeaway food items at a restaurant or its drive-thru but consume them somewhere else or at your home.
Most people consider takeaway services as part of retail food services. But it is not true. HMRC specifies takeaway and delivery services as a different category. The VAT charges for takeaway and delivery services differ from those for dine-in facilities.
The VAT charges have undergone massive transformations over the past few decades. The HMRC department regularly updates the VAT charges after assessing the country’s economy.
Till 2021, the VAT charges for hospitality items were reduced to 5% and 12.5% . But in 2022, the HMRC revised the VAT guidelines and became applicable from 1st April onwards. According to the current obligations, the VAT for food and drink items is calculated under the following two categories. These include;
The first category we have is zero-rated products. As their name suggests, the VAT percentage for these products is 0%. You do not pay any additional amount for these products, i.e., taxes. Instead, you pay only for what you are consuming.
Zero-rated products are those that people buy for consumption from retail services. These include discounted stores, supermarkets, and grocery stores. The uncooked food sold at some restaurants also comes under these zero-rated products. Some takeaway items which need preparation afterwards also come under the zero-rated products. For instance, coffee beans, microwave pizza, canned food, or milkshakes are all zero-rated items.
The next category we have is standard-rates products. The standard-rated food or drink items are charged 20% VAT of the total price. The products that come under this category are hot or freshly-prepared items.
These food or drink items are typically sold at food marts, restaurants, and cafes. All catering and dine-in services come under standard-rated products. This category also includes most takeaway and delivery food items such as pizzas, hot coffee, or Chinese cuisine.
Contrary to what many people think, bakery items such as confectionery and cakes are also part of standard-rated products. Moreover, ice creams, smoothies, and bottled water also have 20% VAT included in their overall prices.
Unlike other categories, which have been clearly categorized as either zero-rated or standard-rated, the takeaway and delivery items have a mixed response. Some takeaway items come under the zero-rating, such as milkshakes, iced teas, and iced coffees. While the others, such as burgers, freshly-prepared food, and pastries, are labelled as standard-rated.
Since there is so much confusion regarding VAT on takeaway food and drinks, the HMRC has specified this category further in two divisions, i.e., hot takeaway food items and cold takeaway food items. Let’s discuss the two classifications extensively so that you can estimate which items you should charge VAT.
VAT is mandatory when the takeaway food or drink items are hot and freshly prepared. No matter where this item is sold, VAT on takeaway food will become mandatory when the item is sold to the customer. Here the word hot is defined as the food that has a higher temperature than its surroundings. To clarify this term, the HMRC defines hot food with the help of the following five points.
Many businesses make the mistake of advertising or selling food items in a way that zero-rated products become eligible for VAT. As a business person, you should aim to sell zero-rated items as much as possible.
Because when VAT on takeaway food is included in products, their overall price surges, which makes them inaccessible to many people. The following are some of the precautions which can be taken to prevent zero-rated food items from being rated as standard-rated.
Next comes the cold takeaway category. Most people consider that cold food comes under the zero-rated category. But it is not true. There are some cold food and drink items that are still subjected to VAT. These items include the following;
Confectionery Items
Although cold, confectionaries such as pastries, croissants, cakes, and ice cream are still standard-rated. This means that you must include 20% VAT in the final receipt while selling these items.
Alcoholic Products
All alcoholic products, such as beer, champagne, and wine, are also standard-rated, and VAT is included.
Other Beverages
VAT also applies to miscellaneous items such as bottled water, smoothies, energy drinks, and sports boosters.
Roasted Food Items
Some food items are served cold but are rotated initially. These items are also categorized as standard-rated products, e.g., popcorn, roasted nuts, and similar snacks.
Smoothies
Many people make the mistake of perceiving smoothies as similar to liquefied fruit bowls and think VAT does not apply to them. However, it is not valid. Smoothies are considered a beverage and come under standard-rated products.
One of the most frequently asked questions is whether VAT applies to coffee items. Now coffee comes in both cold and hot forms. Therefore, this question may seem confusing to many business owners.
The HMRC rules for hot and cold items are also valid for coffee items. This means that hot coffees, espresso, and lattes are categorized as standard-rated products. Coffee beans are retail items as they are uncooked food products.
Cold coffee items like iced coffee and its customized versions are zero-rated, implying that VAT is not imposed on them. However, some gourmet types of fancy iced coffees are eligible for VAT due to their premium blends.
Final Verdict
The above context provides an explicit briefing regarding VAT on takeaway food UK. VAT is commonly followed in all the European nations and South Africa. However, VAT customs and rates broadly vary from area to area.
Therefore, it is suggested that before concluding, you should check your region’s VAT rules and obligations. Earlier, VAT used to be pretty lenient, as it only charged 12.5% tax on standard-rated items.
But after the COVID-19 pandemic, when inflation soared nationwide, HMRC has also increased the VAT rates for standard-rated products. All renewed and modified rates of VAT are available on the HMRC website; therefore, in order to keep yourself up-to-date, you can check their website frequently.
FAQs
Most food and drink items retailers sell are VAT-free. However, the majority of the time, food services by cafes, bakeries, and restaurants include VAT.
Till 2021, there used to be a 5% VAT on takeaway food. But after April 2022, the VAT on standard-rated products was increased to 20%.
Since fish and chips come under the hot food category, a 20% VAT applies to them.
If the coffee is iced or chilled, there won’t be any VAT. But if it is hot, then 20% VAT will apply to it.
Rían Doyle
I'm a VAT professional with years of experience helping businesses with compliance and reporting. My goal is to simplify VAT calculation and provide valuable insights through my engaging writing style and clear explanations of complex concepts.
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