VAT on Takeaway Food: Hot, Cold, Eat-In and Delivery

VAT on food is one of the most confusing parts of running a café. The same sandwich can carry 20% VAT or none at all, depending on whether it is eaten at a table or taken away, and whether it is hot or cold. Get it wrong one way and you pay HMRC more than you need to. Get it wrong the other way and you could face a bill for back VAT.

This guide explains the rules in plain English for UK cafés, takeaways and restaurants that are VAT registered. It is a summary, not tax advice: HMRC's VAT Notice 709/1, "Catering and take-away food", is the full guidance, and your accountant can help with anything unusual.

The short version

• Most food is zero-rated. Basic food, such as bread, sandwiches, cakes and salads, carries no VAT when it is taken away cold.
• Eating in is standard-rated. Anything eaten on your premises, hot or cold, is "catering" and carries 20% VAT.
• Hot takeaway food is standard-rated. Food sold hot to take away carries 20% VAT.
• Some items are always standard-rated. Hot drinks, soft drinks, bottled water, alcohol, confectionery, crisps and ice cream carry 20% VAT whether eaten in or taken away.
• Delivery usually follows the food. Hot food delivered carries 20%; cold food delivered is usually zero-rated.

When you need to charge VAT

You must register for VAT when your taxable turnover goes over £90,000 in any rolling 12-month period. Taxable turnover includes zero-rated sales, so a café that sells a lot of cold takeaway food still counts those sales towards the threshold.

Below the threshold you can register voluntarily, but most small cafés don't, because they would have to add VAT to their eat-in and hot food prices.

Cold takeaway food: usually zero-rated

Most cold food sold to take away is zero-rated, with no VAT. That includes:

• Sandwiches, wraps and rolls
• Salads and cold pasta pots
• Cakes, scones and most biscuits
• Pastries and croissants sold cold
• Milk and milkshakes made with milk

Within cold food, some items are standard-rated however they are sold:

• Confectionery, such as sweets and chocolate bars, and biscuits covered in chocolate
• Crisps and savoury snacks
• Soft drinks and bottled water
• Ice cream and frozen desserts
• Alcohol

So a takeaway lunch of a cold sandwich, a bag of crisps and a can of drink has a zero-rated sandwich and two standard-rated items.

Hot takeaway food: standard-rated

Takeaway food is standard-rated if it is hot when you sell it and it was heated so it could be eaten hot. HMRC looks at things like:

• whether you heated the food so the customer can eat it hot
• whether you keep it hot after cooking, for example in a heated cabinet
• whether it is sold in packaging that keeps it hot
• whether you advertise or sell it as hot

So a toasted panini, a bacon roll, a hot sausage roll from a heated cabinet, soup and jacket potatoes are all standard-rated when taken away.

The freshly baked exception

Food that happens to be hot only because it has just come out of the oven, and isn't sold to be eaten hot, can stay zero-rated. A croissant or loaf sold warm because it was baked minutes ago is the usual example. A sausage roll kept in a hot cabinet so customers can eat it hot is standard-rated.

Hot drinks: always standard-rated

Tea, coffee, hot chocolate and other hot drinks are standard-rated whether the customer drinks them in or takes them away. Cold coffee and milk drinks taken away, such as an iced latte or a milkshake, can be zero-rated, while cold soft drinks are not, so check any drinks you are unsure about.

Eating in: everything is standard-rated

Food and drink eaten on your premises is catering, and catering is standard-rated. That includes cold food. A cold sandwich carries no VAT taken away and 20% VAT eaten at a table.

"Premises" covers more than your indoor tables. It includes:

• tables and chairs outside your café that you provide
• seating areas you share with other businesses, such as a food court, if they are there for your customers to eat in
• anywhere else you provide for customers to eat

If a customer says they will take away and then sits down, the rule is based on what happens. In practice, train staff to ask "eat in or take away?" before the order and charge accordingly.

Delivery

Delivered food follows the same rules:

• Hot food delivered, such as a pizza or a curry, is standard-rated.
• Cold food delivered, such as sandwiches or a cake, is usually zero-rated.
• Standard-rated items, such as soft drinks, stay standard-rated.

A delivery charge usually follows the VAT of the food it delivers. If one order mixes hot and cold food, or zero-rated and standard-rated items, the delivery charge may need to be split. Ask your accountant how to treat mixed orders.

A worked example in pounds

Here is how VAT works out on three common sales. In the UK, prices to the public include VAT, so the VAT inside a standard-rated price is one sixth of it (20% added to the price before VAT).

A flat white at £3.30. Hot drink, standard-rated whether in or out.

• VAT: £3.30 ÷ 6 = 55p
• You keep £2.75

A cold ham and cheese sandwich at £4.80.

• Taken away: zero-rated. VAT £0, you keep £4.80.
• Eaten in: standard-rated. VAT £4.80 ÷ 6 = 80p, you keep £4.00.

A toasted panini at £6.00. Hot food, standard-rated either way.

• VAT: £6.00 ÷ 6 = £1.00
• You keep £5.00

The sandwich shows why the eat-in question matters. If you charge the same price either way, you earn 80p less on every sandwich eaten at a table. Over 40 eat-in sandwiches a day, that is £32 a day, or about £800 a month at 25 trading days. Some cafés set a slightly higher eat-in price for cold food to cover the VAT, which is allowed as long as the prices are clear.

The Flat Rate Scheme

Small VAT-registered businesses can use the Flat Rate Scheme instead of working out VAT on each sale. You pay a fixed percentage of your VAT-inclusive turnover, and you don't reclaim VAT on most purchases. The rate for catering, including restaurants and takeaways, is 12.5%, and businesses that spend very little on goods pay a higher rate.

The scheme is simpler, but for a café with a lot of zero-rated takeaway sales it can cost more, because you pay the flat rate on zero-rated sales too. Ask your accountant to compare the two before you join.

Common mistakes

• One VAT rate for everything. Charging 20% on all sales overpays VAT on cold takeaway food. Charging 0% on everything underpays on eat-in and hot food.
• Not asking eat in or take away. Without it, you can't charge the right VAT.
• Forgetting standard-rated items. Crisps, soft drinks and chocolate bars are standard-rated even in a cold takeaway lunch.
• Hot cabinets. Food kept hot to sell hot is standard-rated, even if it was cooked hours ago.
• Delivery charges. Treating every delivery charge as zero-rated, or every one as standard-rated, without looking at what is delivered.

How it works in Café QR

Café QR lets you set the VAT for each item twice: once for eating in and once for takeaway and delivery. The right rate is used automatically, whichever way the order comes in.

• Two rates per item. In Menu, open an item and set its tax rates: Eat in and Takeaway & delivery. Leave a rate blank to use your café's normal rate, and use 0 for zero-rated food such as a cold sandwich to take away.
• Used everywhere you sell. The till, the QR menu, the self-order kiosk and your online order page all use the takeaway rate for takeaway, collection and delivery orders.
• VAT on the delivery fee is worked out for your delivery zones.
• Reports and cash-up show VAT separately from net sales, and the daily journal for QuickBooks, Sage or Xero keeps sales and VAT apart.

The till is in the POS plan at £39 per venue a month, or the "Till and cash-up" add-on at £15 a month on Order & Pay. See how the Café QR till works.

Related reading

• Café Profit Margins
• How to Open a Café in the UK
• How Much Does an EPOS System Cost in the UK?