Eat-in or Take-Away? Hot or cold? VAT’s the Difference in the Food Industry

The landscape of the leisure and hospitality industry has faced tremendous challenges over the past number of years, compelling many business owners to adapt and innovate in order to survive. As restaurants have pivoted from traditional dining experiences to offering takeaway services, questions have arisen regarding the complexities of value-added tax (VAT) on different types of food sales. Despite the hurdles, some restaurateurs have discovered a silver lining in the model of takeaway operations.

The VAT implications of food are not straightforward to say the least. Whilst the food and hospitality industries are like all other businesses in that they must become VAT registered once their annual turnover reaches £85,000, the specifics of whether food sales are VATable and at what rate can be a minefield.

If you serve food and drink on the premises (not to take away) then you have to charge VAT on everything. Examples of premises are:

• a whole restaurant area
• an area with tables and chairs in a retail complex, for the use of customers only
• an outdoor area with tables and chairs, for the use of customers only
• seating area in a supermarket, providing food and drink
• stall in a sports stadium, amusement park etc with facilities for use of customers

Basically, any area with tables and chairs specifically for the use of your customers.

The main rules in relation to takeaway food and drink are :

• Hot take away food is most likely to be standard rated for VAT (20%).
• Hot take away drinks are standard rated (20% VAT).
• Cold take away food and drink is normally zero rated for VAT. Unless it’s usually standard rated (this includes things like crisps, sweets, bottled water etc).

For your food business, it is important to consider these implications in order to make sure that you are fully compliant with HMRC and are not subject to any associated penalties or fines. As noted above, factors which can affect VAT rates include whether sales are hot or cold, their chocolate content and whether they are eaten in or taken away.

Once you have determined the VAT treatment of the items you are selling, VAT returns will be due in the normal way.

It’s easy to make mistakes when deciding whether or not charge VAT on food, and if you are unsure then we would recommend that you speak to one of our tax team.