As a Café, what VAT do I need to pay?

Any Café with any area set aside for the consumption of food by customers, supplying food or drink to be consumed in the Café, or any additional food consumption area (for example chairs on a pavement outside your café), will have to pay the Standard Rate of VAT on the food and drink sold for that purpose.

What if I also sell cold food to be eaten as take away by the customer? You can apportion your sales of cold food between those consumed on the premises (standard-rated) and those taken-away (zero-rated).If you are unable to ascertain the correct liability at the point of saleyou must retain satisfactory evidence to support a fair and reasonable apportionment. Make sure that the cold food items follow the VAT liabilities as described in Notice 701/14 Food
How about Hot takeaway drinks? These are always Standard Rated
Hot takeaway food? If the food (or any part of it) is hot at the time it is supplied to the customer and any one of the following tests are met, then the food is standard rated:

  • It has been heated for the purposes of enabling it to be consumed hot
  • It has been heated to order
  • It has been kept hot after being heated
  • It is provided to a customer in packaging that retains heat (whether or not the packaging was primarily designed for that purpose) or in anyother packaging that is specifically designed for hot food
  • It is advertised or marketed in a way that indicates that it is supplied hot
What if I have a microwave so the customers can heat up their food themselves? This is still seen as fulfil the tests above so the food would be standard rated.
What about hot food with a cold ingredient (i.e. Hot dog) This is standard rated.
I have deal where you can buy a takeaway burger, chips and a milkshake; do I need to pay VAT ? If you sell hot and cold items at an inclusive price, you will need to work out the tax value of each item in order to calculate how much VAT is due on the standard rated items.
What about Salt and Ketchup? Condiments supplied at no charge to the customer can be ignored for VAT purposes
There is a vending machine in my café, is that liable for VAT? All supplies of food and drink from vending machines in café’s and restaurant type areas are standard-rated as supplies to be consumed on the premises where they have been supplied. An apportionment will only be allowed if the food seller can produce evidence to show that a proportion of the items of cold food (that would be eligible for zero-rating) are taken-away from the premises.
I deliver cold food and drinks such as sandwiches and bottled drinks from my café do I have to pay VAT? So long as the food is cold then that is not catering for the purpose of calculating VAT and you only have to follow the advice in Notice 701/4 Food
I sometimes provide packed lunches to events or functions, are these VAT liable? Yes- the HMRC considers this to be catering even when it’s done by a café and you will have to pay standard rate VAT
Do tips and service charges attract VAT? If you have a compulsory service charge then that sum attracts the standard rate of VAT, however if you allow customers to leave a tip if they wish then any money they leave is zero-rated.
I run my own Café, acting as a principle, how do I account for VAT? You must account for VAT on any supplies of catering or hot take-away food. You can reclaim any VAT charged to you as input tax, subject to the normal rules.
My Café is based in someone else’s business, (i.e. I run a café in a separate business, run by someone else) how should I account for VAT? You must account for VAT on:

  • Any supplies of catering or hot take-away food. You can reclaim any VAT charged to you under the normal rules
  • Sales of other standard rated items of food
  • Your fee to the owner of the catering facility
  • Any subsidy you receive from the owner of the catering facilities. This subsidy is standard-rated and should include payments you receive to balance a profit and loss account
  • You must account for VAT on your supplies even if the owner of the facilities makes exempt supplies
My café is based in someone else’s business, and I sometimes supply that business with food or drink (i.e. meals for events they are having), as well as running my café in their premises. How do I account for VAT? You supply food and drink to the owner of the catering facilities and then you prepare and serve it to the users of the premises on the owner’s behalf, so you are acting both as a principal in your own right and as an agent of the owner. You must account for VAT on both:

  • Your supplies of prepared food and drink to the owner. You can reclaim any VAT invoiced to you subject to the normal rules
  • Your fee for your services to the owner of the catering facilities for running the canteen.
I sometimes supply meals or drinks free of charge to customers or friends, do I need to pay VAT on this? This is business entertainment and you will not be entitled to deduct any input tax incurred in the provision of the meal or on the purchase of the drinks
I like to provide free sweets or drinks as part of a meal my customer pays for, such as mints or liqueurs with the bill, I this VAT liable? Treat this input tax as attributable to the taxable supply of the meal.
I give meals or drinks in exchange for an identifiable benefit to my business, (i.e. to coach drivers or party organisers in return for bringing their party to my café, do I need to pay VAT on this? Deduct any VAT incurred but you must account for output tax on the cost to you of these supplies
What about when I supply myself or my family with meals? You need not account for VAT on those meals. However, you must account for tax on the full cost to you of any standard rated items you take out of stock for your own or your families personal use.
I provide meals to my employees free of charge, does this attract any VAT? These meals would be zero rated.
My employees eat at the café and the cost is deducted from their gross wages, as set out in their contract of employment, is this VAT liable? These meals would be zero rated.
There’s a vending machine in my café which my employees can free of any charge, does this follow the same rules as other vending machines? No, these goods would be zero rated.

What foods are standard rated?

As a café the vast majority of your sales will be standard rated as the most of the food and drink you sell will be consumed on your premises. However, if you sell foods and beverages for takeaway, then you can use this table to work out how much VAT to charge on those purposes.

Potato Crisps Standard rated
Pastries Zero rated
Hot drinks (teas, hot chocolate coffee) Standard rated
Squash, Carbonated beverages and other soft drinks Standard rated
Alcoholic drinks Standard rated
Ice cream Standard rated
Sweets Standard rated
Cake Zero rated
Sandwiches Zero rated
Salads Zero rated
Fresh fruit Zero rated
Coffee beans or tea bags for customer to use at home Zero rated
Fresh bread Zero rated
Chocolate covered biscuits Standard rated
Ginger bread men Zero rated
Chocolates Standard rated
Mineral or bottled water Standard rated
Vegetable crisps or corn based crisps Zero rated

How does it really work?

So how does this work in practise? And how much is the standard rate of VAT? We have a few examples for you of how these calculations work to help you really get to grips with VAT:

One

Desmond runs a café selling takeaway drinks and breakfast pastries. He bakes all the pastries in the morning before the shop opens, not to order. As there is no-where inside or outside, the café to sit down he does not have to standard rate everything he sells. He has to pay standard rate on the hot drinks he sells but the pastries are zero rated.

SR or ZR? Gross Amount VAT amount Net amount (excluding VAT)
Coffee SR 1.90 0.32 1.58
Croissant ZR 1.50 0 1.50

Two

Desmond moves into larger premises. Now his café has a seating area and he also sells bacon sandwiches and other hot food items which are cooked to order which the customer can take away. He tracks whether the food is sold as take away or eat in at the point of sale and keeps evidence of this to show HMRC. He has to pay standard rate VAT on all items sold to be eaten in the café. He can zero rate the pastries sold for take away but he must pay VAT on the hot food cooked to order for takeaway.

Eat in or take away SR or ZR? Gross Amount VAT amount Net amount (excluding VAT)
Coffee Eat in SR 1.90 0.32 1.58
Coffee Takeaway SR 1.90 0.32 1.58
Croissant Eat in SR 1.50 0.25 1.25
Croissant Takeaway ZR 1.50 0 1.50
Bacon Sandwich Eat in SR 2.20 0.37 1.83
Bacon Sandwich Take away SR 2.20 0.37 1.83

Three

Susie runs an Italian café. As well as the eat in food she also sells ice cream for customers to takeaway and a takeaway pizza menu. All the food sold to be eaten in the café is standard rated. As the takeaway pizza is cooked to order that is also standard rated. Ice cream is always standard rated.

Eat in or take away SR or ZR? Gross Amount VAT amount Net amount (excluding VAT)
Pizza Takeaway SR 6.60 1.10 5.50
Ice cream cone Takeaway SR 0.99 0.16 0.83
Pasta Eat in SR 7.50 1.25 6.25

Four

Susie decides to diversify her café business. She starts selling coffee beans and cakes from her dessert cabinet for customers to take away. Coffee beans are zero rated, as are the cakes which are consumed away from her premises.

Eat in or take away SR or ZR? Gross Amount VAT amount Net amount (excluding VAT)
Slice of cake Eat in SR 3.50 0.58 2.92
Slice of cake Takeaway ZR 2.95 0 2.95
Coffee beans Takeaway ZR 8.00 0 8.00

Five

Abe runs a kebab shop, selling hot food for takeaway. There is also a small vending machine selling sweets and crisps in the café. The hot food he sells is cooked to order for the customer but there is nowhere to eat in his café. As the food is cooked to order it is all standard rated. As the food in his vending machine is all eaten outside of the premises there is no vat liability over the liability of the food as sold normally- however both sweets and potato crisps attract the standard rate of VAT.

Eat in or take away SR or ZR? Gross Amount VAT amount Net amount (excluding VAT)
Kebab Takeaway SR 4.00 0.67 3.33
Chocolate bar Takeaway SR 0.50 0.08 0.42
Potato crisps Takeaway SR 0.60 0.10 0.50

Six

Abe starts selling sandwiches and cakes as well. He also sets up a seating area outside his café but he has no evidence to prove to HMRC that most of the food is taken away to be eaten elsewhere. HMRC tells him to pay standard rate of VAT on everything he sells, including the food from the vending machines.

Eat in or take away SR or ZR? Gross Amount VAT amount Net amount (excluding VAT)
Kebab Unclear SR 4.00 0.67 3.33
Chocolate bar Unclear SR 0.50 0.08 0.42
Potato crisps Unclear SR 0.60 0.10 0.50
Sandwiches Unclear SR 2.50 0.42 2.08
Cakes Unclear SR 1.95 0.33 1.62

Seven

Abe starts tracking at the till point whether the food he sells is for takeaway or eaten on the seating outside the café. He now doesn’t have to pay VAT on takeaway sandwiches or cake. He can’t track the goods sold from the vending machine, but it doesn’t matter as chocolate and crisps would attract the standard rate of VAT whether they were eat-in or takeaway.

Eat in or take away SR or ZR? Gross Amount VAT amount Net amount (excluding VAT)
Kebab Eat in SR 4.00 0.67 3.33
Kebab Takeaway SR
Chocolate bar Unclear SR 0.50 0.08 0.42
Potato crisps Unclear SR 0.60 0.10 0.50
Sandwiches Eat in SR 2.50 0.42 2.08
Sandwiches Takeaway ZR 2.50 0 2.50
Cakes Eat in SR 1.95 0.33 1.62
Cakes Takeaway ZR 1.95 0 1.95

Eight

Rene runs a café in a bakery. As well as her eat in menu she also sells sandwiches and cans of drinks to takeaway. Cold takeaway sandwiches are zero rated but cans of drink are standard rated. The café also sells a selection of fresh bread for customers to take home. Sometimes the bread is warm when it is sold, but it hasn’t been kept warm deliberately and is not cooked to order so the bread products will all be zero rated. Customers sometimes choose to leave a tip, so that money is zero rated.

Eat in or take away SR or ZR? Gross Amount VAT amount Net amount (excluding VAT)
Fresh bread Takeaway ZR 2.00 0 2.00
Tip N/A ZR 1.22 0 1.22
Cans of drink Eat in SR 0.60 0.10 0.50
Cans of drink Takeaway SR 0.60 0.10 0.50
Sandwiches Eat in SR 2.50 0.42 2.08
Sandwiches Takeaway ZR 2.50 0 2.50

Nine

Rene starts selling birthday cakes for customers to take away from the café, these are zero rated. She also starts selling chocolate covered shortbread for takeaway, which are standard rated and gingerbread men decorated with icing for takeaway, which are zero rated.

Eat in or take away SR or ZR? Gross Amount VAT amount Net amount (excluding VAT)
Birthday cake Takeaway ZR 20.00 0 20.00
Chocolate covered shortbread Eat in SR 1.99 0.33 1.66
Chocolate covered shortbread Takeaway SR 1.99 0.33 1.66
Iced gingerbread men Eat in SR 0.80 0.13 0.67
Iced gingerbread men Takeaway SR 0.80 0 0.80

Ten

Emma runs a small café. She sells takeaway soup- this soup is not cooked to order, but it is kept warm so that Emma’s customers can consume it hot and sold in an insulated cup so it is liable for standard rate VAT. Emma also fresh fruit which is zero rated.

Eat in or take away SR or ZR? Gross Amount VAT amount Net amount (excluding VAT)
Hot soup Takeaway SR 1.99 0.33 1.66
Banana Takeaway ZR 0.709 0 0.70

4 thoughts on “As a Café, what VAT do I need to pay?”

  1. Hi – does this apply for everyone, or is it just for businesses where the turnover is over the £80k threshold at the end of the year?

  2. this information was super helpful to me as I’ve never set up a food retail business before. The senarios and breakdown charts are very easy to understand and have simplified the HMRC information for me.
    Thanks

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