VAT on Food and Drink

Introduction

VAT on food and drink can be complicated because the same product may be charged at different rates depending on how and where it's sold. Most food for home consumption is zero-rated, but items sold as catering, hot takeaways, and certain products like crisps and ice cream are standard-rated at 20%. Understanding these rules is essential if you run a café, restaurant, takeaway, food shop, or any business that sells food and drink.

The basic rule: zero-rated vs standard-rated food

Most food and drink "of a kind used for human consumption" is zero-rated for VAT purposes. This means you don't charge VAT to your customers, but you can still reclaim VAT on your business purchases.

However, food is always standard-rated (charged at 20%) in these situations:

When supplied in the course of catering
When it's hot takeaway food or drink
When it falls into specific categories of excepted items (explained below)

What counts as 'catering'

Catering is characterised by a supply involving a significant element of service. Supplies made in the course of catering are standard-rated and include:

Food and drink supplied in restaurants, cafés, canteens and similar establishments (except cold takeaway food)
Catering for events and functions such as wedding receptions, parties or conferences
Cooking or preparation of food at a customer's home (for example, for a dinner party)
Delivery of cooked ready-to-eat food or meals, with or without crockery or cutlery

Food for on-premises consumption

Food and drink supplied for consumption on your premises is treated as catering and is standard-rated. This applies even to items sold from vending machines located in canteens and restaurant-type areas.

The key question is whether the food is intended to be eaten on the premises where it's supplied. Items clearly not intended for on-premises consumption include packets of tea, packaged coffee, sugar, loaves of bread and cartons of factory-sealed milk. These follow the normal rules for retail food products.

Hot takeaway food and drink

Hot takeaway food and hot takeaway non-alcoholic beverages are standard-rated, even when sold for consumption off the premises.

This is a specific exception to the zero-rating of most food products.

Cold takeaway food

Cold takeaway food follows different rules:

Retail supplies of cold takeaway food that would normally be zero-rated (like sandwiches) remain zero-rated when sold as takeaway
However, if you supply cold takeaway food under a catering contract, it becomes standard-rated

For example, if you take sandwiches to offices to sell them without any contract or agreement, you can zero-rate eligible items. But if you're supplying the same sandwiches under a contract to cater for an event, all your supplies become standard-rated.

Always standard-rated food products

Certain food and drink items are always standard-rated, regardless of whether they're for home consumption or catering. These are:

Ice cream and frozen products

Ice cream, similar frozen products, and mixes for making them are standard-rated. The exception is frozen yoghurt designed to be thawed before eating, which can be zero-rated.

Confectionery

Confectionery is standard-rated, with the exception of cakes and some biscuits. You can zero-rate drained cherries and candied peel.

Beverages

All alcoholic beverages are standard-rated
Most other beverages and preparations for making them are standard-rated
Exceptions that can be zero-rated: milk and milk drinks, tea, maté, herbal tea, coffee and cocoa, and preparations of yeast, meat and egg

This means fruit juices, soft drinks, smoothies, and bottled water are all standard-rated.

Savoury snacks

Potato crisps, roasted or salted nuts, and some other savoury snack products are standard-rated.

Home brewing products

Products for home brewing and wine making are standard-rated.

Food requiring customer preparation

If you supply food that customers must prepare themselves before eating, this is not catering. The supply can be zero-rated (if it's an eligible food product), whether the food is delivered to or collected by your customers.

For these purposes, 'preparation' includes:

Thawing frozen food
Cooking food
Reheating pre-cooked food
Arranging food on serving plates

Packed meals and lunches

The VAT treatment of packed meals depends on the circumstances:

Packed meals provided as part of an event or function (such as for coach parties or race meetings) are standard-rated catering
If you run a hotel and supply bed and board including packed meals at an inclusive price, the whole supply is standard-rated
If you supply a packed meal as a separate charge for consumption off your premises, it can be zero-rated (apart from always standard-rated items)

Service charges and tips

Service charges you add to a bill are standard-rated. However, if a customer freely gives a tip above your total charge, no VAT is due on the tip.

Grocery items sold from catering outlets

If you sell grocery items from a café or restaurant in the same form as sold by a grocer or supermarket, and they're not intended for on-premises consumption, you can apply the normal retail food rules rather than treating them as catering.

Basic foodstuffs

You can zero-rate all supplies of unprocessed foodstuffs, including:

Raw meat and fish
Vegetables and fruit
Cereals, nuts and pulses
Culinary herbs

This applies whether you supply them directly to the public or for use as ingredients in manufacturing processed foods, provided they're fit for human consumption.

The temporary reduced rates (historical)

For accounting purposes, you should be aware that a temporary reduced rate applied to certain catering and hot takeaway supplies between 15 July 2020 and 31 March 2022:

5% from 15 July 2020 to 30 September 2021
12.5% from 1 October 2021 to 31 March 2022

From 1 April 2022, normal VAT rules apply and these supplies are charged at the standard rate of 20%.

Sources

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.