When Should You Charge VAT on Takeaway Food
We’ll assume that if you are reading this article your business, whatever it may be, sells takeaway food and/or drinks. We’ll also assume that it is VAT registered, and you have questions about whether certain items you offer to the public should include VAT in the purchase price. And you are a bit confused, which is not surprising, as the issues around VAT on takeaway food are complex to say the least.
However, if you read on, we can promise to make things clearer, even as the COVID-19 pandemic has muddied the waters around VAT on takeaway food even further.
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Let’s start with the undisputed basics of VAT on takeaway food:
- On zero-rated products, you charge a flat rate of 0% VAT. The sale of coffee beans, for example, is tax-free. So, if you run a coffee shop, and you sell a whole bean version of your delicious brews to the public in a container, that is a zero-rated product.
- You charge VAT on standard rated products. Hot drinks are always standard rated. So when you turn those zero-rated coffee beans into a nice cup of hot takeaway coffee, it becomes a standard rated offering, and you charge VAT.
- The standard VAT rate is 20%, but hospitality businesses are currently subject to a reduced rate of 5%. From Wednesday, July 15, 2020, to September 30, 2021, a temporary 5% VAT rate will be in effect.
- From October 1, 2021, to March 31, 2022, a new temporary rate of 12.5 percent go into effect, with the standard rate reverting to 20% on April 1, 2022. With all this subject to change if the government so decrees. And here’s another wrinkle. Some takeaway foods are still subject to the standard 20% VAT rate regardless, in the same way that alcohol is. But more on that in a moment.
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When a retailer provides food and drink for human consumption, it is frequently zero-rated. Standard rated meals and drinks are frequently served hot or consumed in a café or restaurant. However, some cold or takeaway foods and beverages are zero-rated. There are numerous exceptions to this rule. There are also some gray areas. Yes. This IS complicated and confusing, so we feel your pain.
VAT applies to sales made in the course of catering. Catering for a wedding, delivering ready-to-eat meals, or providing packed lunches are all examples of this.
Catering sales, on the other hand, do not include meals that require additional preparation. Preparation can include anything from reheating to arranging on a plate. This isn’t to say it’s automatically rated zero, so keep reading.
Then there’s the question whether or not your product is consumed on your premises. If this is the case, you must charge VAT. All chairs and tables inside and outside your restaurant, as well as shared tables reserved for customers, are included in your premises (like shared tables in a shopping mall). Your premises do not include public benches or airport lounges.
If you’ve made it this far, it’s safe to assume you’re selling takeaway food or beverages.
Are the foods and beverages served to your customers hot? The term “hot” refers to a temperature that is higher than the ambient temperature; however, HMRC states that whether food is served hot or not is self-evident and do not provide an actual numerical temperature standard.
The first requirement for charging VAT on takeaway food is that it be hot. You must also pass one of the five tests listed below:
- Is the food heated so that it is hot for the consumer? Pizza, burgers and hot coffee are all supposed to be hot when consumed, so are good examples of hot takeaway food.
- Is the food heated up to order? Like warming up a panini or a sausage roll if the customer asks you to.
- Do you keep the food hot after it is prepared? Examples might include keeping hot dogs in hot water or items being kept in keep hot cabinets or under heat lamps.
- Do you serve the food to the customer in keep hot packaging? Food in plastic containers isn’t always designed to stay warm. You could argue that they’re used to keep food sealed and protected from the elements. However, foil-lined packaging is clearly intended to keep food warm.
- Do you advertise that the food is served hot? It’s enough to include the words ‘hot’ or ‘roasted’ in the name.
Food and drink that is served hot and meets one of the five criteria above is subject to VAT.
How do you legally say your food needs more preparation or isn’t served hot, to avoid charging VAT?
- Include instructions for reheating your takeaway meals.
- Don’t package your food in foil-lined containers.
- Allow hot food to cool naturally, though for hygiene reasons, keep it at a low temperature.
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VAT and Cold Takeaway Food and Beverages
Congratulations, your sale is probably zero-rated if you’re selling cold takeaway meals, or you don’t meet one of the five conditions for hot food.
However, HMRC has designated some products as standard or zero-rated.
Some of the most common items are listed below.
Cold takeaway foods and drinks that are standard rated:
- Confectionary and ice cream
- All alcoholic beverages
- Sports/energy drinks, juices, smoothies and bottled water. The Innocent Company, who make those yummy fruit and veggie drinks – once tried to argue in court that their products were liquified salads and therefore exempt from VAT, but they lost that argument.
- All potato crisps and some bagged savory snacks.
There are also some exceptions that are zero-rated that you might not expect to be:
- Baked Alaska – baking that ice cream turns it into a zero-rated item.
- Most traditional Indian, Pakistani and Japanese dessert delicacies considered ‘traditional’ and ‘native’ to the culture they originate from.
- Rum babas and fruit preserved in alcohol are zero rate products. However, alcoholic jelly shots are not.
- Iced coffee, as it’s supposed to be served cold.
- Corn based snacks, vegetable based snacks, and unshelled nuts.
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Answering More Common Questions About VAT on Takeaway Food
So, there’s no denying that the issue of VAT on takeaway food can be a confusing one. Here are the answers to some of the most commonly asked questions about other issues we’ve yet to cover:
Is All Cold Takeaway Food Zero-Rated?
Unless it’s on the list of exceptions, cold takeout food gets a zero rating. Ice cream, orange juice, potato crisps, and most confectionery items, for example, are standard rated exceptions.
Should I be Charging VAT on Takeaway Pastries?
Maybe. Or maybe not. Croissants can be sold hot or cold. If you sell them cold, they are zero-rated. If you heat them up – perhaps by toasting them – to be consumed hot, then they become standard rated and subject to VAT. The same is true of sausage rolls. If you keep them in a cabinet to be served hot, they are standard rated. If you serve them cold or chilled, they are not.
Do I Have to Charge VAT on Condiments?
No, as the use of condiments calls for some consumer preparation, condiments are zero-rated.
While all of this is complicated, ignorance is no defence under law, so it is in your best legal interests to ensure that you are charging VAT on takeaway food when you should be. However, you should also be aware of the rules so that you can skip the extra charge when allowed and pass those savings on to your customers.
When in doubt, don’t guess. Consulting an accounting specialist to address your unique situation will be a lot cheaper (and easier) than answering a case brought against you by HMRC!
This product might be of interest to you:
Is there VAT on takeaway food?
Yes and no. There is a VAT that applies to hot takeaway food. However, there is no VAT on cold, chilled or frozen takeaway food.
Looking for more information? Let’s chat!
Is there VAT on takeaway fish and chips?
Yes, there is. There is a 5% VAT on hot non-alcoholic drinks and hot food. Since fish and chips are served hot from all possible outlets or stores, it’s safe to say that there is VAT in there.
What foods are VAT exempt?
Most foods are exempt from VAT at a 0% rate, so you don’t have to pay VAT.
However, some foods are not VAT exempt, including:
- hot food,
- sports drinks,
- alcoholic drinks,
- mineral water,
- crisps and savoury snacks,
- hot takeaways,
- soft drinks,
- confectionery, and
- ice cream.
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