VAT on Restaurant Food: All You Need to Know

Unless you’ve studied accounting, dealing with Value Added Tax (VAT) is likely to be a confusing, difficult and rather murky topic, especially for restaurant owners who are just starting out.

When it comes to the accounting of restaurants, it is important to understand the subtle distinctions of when VAT is applied on foods. The type of food and where the food is consumed are details to be considered. 

While VAT on food may seem like a complex topic, there is a relatively simple solution. Keep reading to get the answers to this tricky situation!

What Is VAT on Food?

One of the most important things to understand about selling food items is that the supply of the majority of food and drink products used for human consumption is zero-rated. However, there are some very important exceptions. 

First, some products are always subject to the standard VAT rates of 20%. 

Foods, which fall within the scope of the standard VAT rate, include: 

• Food and drink products supplied by catering services; 
• Alcoholic drinks; 
• Confectionery; 
• Crisps; 
• Savoury snacks; 
• Sports beverages and soft drinks;
  Hot food and hot takeaway food; 
• Ice cream;
• Mineral water. 

In recent years, some food items fell under the category of the reduced VAT rate between the 15th of July 2020 and the 31st of March 2022 as a result of the COVID-10 outbreak (which no longer applies in 2024).

Between the mentioned time periods, reduced VAT rates were applied to:

• Hot takeaway food intended to be consumed outside the premises where it was supplied.
• Non-alcoholic beverages supplied hot and intended to be consumed outside the premises where they were supplied.
• Hot and cold non-alcoholic beverages intended to be consumed on the premises where they were supplied.
• Hot and cold food intended to be consumed hot or cold on the premises where it was supplied.

Please keep in mind that these reductions were only temporary and no longer apply.

How Does VAT on Food Work?

Overall, in the UK, the application of VAT on food is a tricky topic. Designed to make this charge both affordable for consumers and substantial enough to cover the needs of the government, there are different rules and charges that apply.

In a nutshell, VAT is an indirect tax, added to the majority of goods and services. However, foods are positioned in a category of their own, with unique and special rules that are designed with the aim of minimising the tax burden on these must-have items. 

Is There VAT on Restaurant Food?

In short, yes, there is VAT on restaurant food in the UK. Standard VAT applies on all food products that are consumed at a restaurant, including in premises like shopping centres, airport food courts, and shared tables in close proximity.

In addition, restaurants are obliged to charge VAT on hot takeaways and home deliveries. However, a key exception is cold or takeaway food (unless the cold takeaway meals are purchased with the intention of consuming them at a restaurant area). 

What Foods Are Zero-Rated for VAT?

As noted above, a large part of alimentary products are zero-rated for VAT.

Food-related items, exempt from VAT, include:

• Fresh fruits and vegetables;
• Herbs, salad ingredients, edible fungi;
• Meat, poultry, and fish (including unprocessed meats);
• Dairy products;
• Bread and bakery;
• Cereals, grains, flour;
• Eggs;
• Non-luxury cooking oils and fats;
• Pulses, nuts, seeds;
• Bottled water and ice;
• Baby and infant foods;
• Tea, coffee, cocoa.

Keep in mind that these items are zero-rated for VAT only when intended for human consumption.

What Are the VAT Rules for Consumption on the Premises?

As in the example with restaurants from above, VAT applies to food items and drinks that are designed to be eaten or consumed in the same place where they are purchased. This includes cafes, restaurants, food courts, and other hospitality locations.

For example, items intended to be consumed on the premises where they are supplied are usually subject to the standard VAT rate of 20%. 

For those providing both takeaway and eat-in options, the VAT rates vary. For example, for eat-in orders, the 20% VAT charge applies. However, selling cold takeaway meals intended to be consumed at home or outside the premises may mean that the product qualifies for zero rating or the full 20% VAT.

On the other hand, when selling hot food and beverages, there is an exception to this rule. Even if the food is ordered to go, hot foods and drinks are taxed at the standard 20% VAT rate. 

Calculating the Correct VAT Rate

Considering the differences noted above, it’s natural that sometimes, you may need to include different VAT rates on the same bill.

It’s essential that you apply the right VAT rate to each individual item sold in order to present the right information. This means breaking down revenues adequately to prevent applying the highest VAT rate on the bill. 

The best way to manage VAT calculations and prevent risks of human error is to rely on cash register software solutions that do this automatically for you. 

What’s the VAT Payable for Food in the UK?

To sum up, there are two rates of charges for food and drinks in the UK.

In the first instance, food and drink for consumption by people, which is usually zero-rated. In the second scenario, there are some items which are always standard-rated. These could include catering products, alcoholic drinks, confectionery, crisps and savoury snacks, hot food, sports drinks, hot takeaways, ice cream, soft drinks and mineral water and others. 

So what is the VAT payable on food in restaurants and pubs in the UK? In short, the answer to this question is 20%. This percentage is the standard rate. There is, however, a reduced rate of 5% and a zero rate as well.

While most food is zero-rated, the food and drinks which are sold across restaurants, pubs and other culinary establishments must include a VAT of 20% to the customer’s bill. 

This means that when you’re pricing your meals, you need to consider the VAT surcharge and add this on top of your final food cost in order to remain profitable.

Should You Charge VAT for Takeaway Food and Drink in the UK?

If you own a pop-up restaurant or a street food stall, it’s good to know that if you serve cold takeaway food and drink, this is generally zero-rated in the UK which means no VAT is payable on it.

However, this does not apply to food and drink that’s always standard-rated such as crisps, sweets, beverages and bottled water. 

VAT – It’s Not That Complicated!

Most restaurants and pubs across the UK offer warm, cooked meals. But even if you were to order some cold sushi or a salad, VAT would still be payable. Therefore, you need to ensure that you price your food accurately and add on the 20% that’s required by law.

By talking through the VAT rate and your food cost per item with your accountant, you’ll settle on food prices on your menu that are reasonable and fair, and which also allow you to make a profit.

Remember to always seek out professional advice when dealing with VAT in order to avoid mistakes and complications further down the road. 

Disclaimer: Please be aware that the contents of this article and the myPOS Blog, in general, should not be interpreted as legal, monetary, tax, or any other kind of professional advice. You should always seek to consult with a professional before taking action, since the particulars of your situation may materially differ from other cases.