VAT on Food – What Should Be Charged and How
If you’re a food retailer, producer, manufacturer, or wholesaler, you need to be familiar with the ins and outs of food VAT to stay in HMRC’s good books. But be warned: it isn’t going to be easy. In fact, the UK government’s guidance on VAT on food is extensive to say the least, confusing if we’re being honest and sometimes as clear as mud.
However, here we are going to make every effort to make the basic rules governing VAT on food as simple as possible to understand.
Do You Have to Charge VAT on Food?
The answer to this question is contingent on the type of food in question. Some foods are rated zero, while others are rated standard. It also depends on how the food is served and the nature of your business whether or not you should charge VAT on it. We told you, confusing from the start!
Catering and VAT
While most food and drink is provided at no cost, anything prepared in the course of catering is always charged at full price. But what exactly qualifies as supplies used in the ‘course of catering’ as far as HMRC is concerned? That’s what it is so important you get right when it comes to deciding how and if you should be charging VAT on food.
For food and drink supplied for consumption on the premises where it is supplied, you must charge VAT at the standard rate. This guidance applies to all the following:
- Pubs, clubs and bars
- Retail food courts
- Fully catered events like wedding receptions.
Basically if people are going to eat or drink on premises you are selling from, you’ll need to charge VAT on the food and beverages they buy.
Is it Hot Takeaway ?
Hot food sold for takeaway is subject to the standard VAT rate if:
- It has been heated so that it can be consumed hot.
- After being heated, it has been kept hot.
- It’s advertised or marketed in a way that implies it’ll be delivered hot.
- The food has been heated to order.
- Customers are given food in packaging that retains heat or is designed for hot food (foil versus a paper bag or clingfilm for example)
Does it Fall Outside the Course of Catering Standards?
Catering is defined as a type of supply that includes a significant amount of service. This can include things like:
- With the exception of cold takeaway food, food and drink prepared in restaurants, cafes, canteens, and similar establishments
- Cooked, ready-to-eat food or meals (whether or not cutlery and/or cutlery are included)
- For events, third-party food and beverage supplies that you as a supplier have prepared and made available (e.g. wedding receptions, conferences, parties)
- Provision of cooking or food preparation services to a customer at their residence (such as a hired chef for a dinner party)
These are some examples that do not fall under the category of “in the course of catering”:
- Cold takeaway food sold in retail stores
- General groceries (like those you buy at Tesco)
- Food or drink that requires the customer to do a lot of extra preparation work to eat (frozen pizza for example)
If your food is not provided as part of a catering service, it is usually VAT free. However, there are some notable exceptions, such as alcoholic beverages, confectionery, ice cream, and savory snacks. On the gov.uk website, you can find a complete list of vat-able food items to check your goods against when needed.
What is Food, For VAT Purposes, Anyway?
If an item meets the following criteria, it is considered food for human consumption:
- Knowing what it is and how to use it, the average person would consider it to be food or a beverage.
- It can be consumed by humans without harm.
Products that can be eaten as a snack or as part of a meal are included as ‘food’ for VAT purposes, as well as well-known food ingredients like flour.
Medicines and medicated prescriptions, as well as dietary supplements, food additives, and other items consumed by humans, are not considered food, even though technically they are eaten.
Anything that is unfit for human consumption, such as used cooking oil, contaminated or waste food, or anything that can be used as animal feed, may qualify for a zero rating. However, anything that is unfit for human or animal consumption is considered standard rate (e.g. offal for processing into fertiliser).
So What Foods are Zero Rated?
All unprocessed human food supplies, including raw meat and fish, fruits and vegetables, cereals, nuts and pulses, and culinary herbs, are zero-rated.
Most ingredients or additives used in home cooking and baking can also be zero-rated, as long as they have some measurable nutritional value, are used primarily in the form in which they are supplied, and do not fall into one of the regulations’ exceptions.
VAT issues, and accounting in general in the UK food and hospitality industry is complicated and multifaceted, which is why most businesses choose to hire an accountant to handle their tax obligations.
We are experts in the Food and Hospitality sector at Pearl Lemon Accountants, having worked in this field for many years. Contact us to discuss how we can help you!