Starting a new business? Get 40% off our accountancy services for 3 months! 😎
Opening your own café or restaurant is a super exciting business venture, but when it comes to things like registering for VAT, we understand it can take the joy out of being a business owner.
Not to mention it can feel like a guessing game – does a chocolate covered biscuit need VAT added to it? Or is it the plain ones? Does a Jaffa Cake count as a cake for VAT purposes? (We’ll answer this one straight away, yes!)
This blog looks at what VAT is, and when you need to add it to your yummy goods.
VAT (which stands for value-added-tax) is a consumption tax which almost all of us have paid at some point. It’s added onto the majority of goods and services sold by VAT-registered businesses.
Whether or not your business must register for VAT boils down to your circumstances. You’ll need to become VAT registered if:
You can voluntarily register for VAT, but it depends on your business’ personal circumstances and finances whether or not that would be beneficial.
If you own a café or restaurant, you have the option of voluntarily registering for VAT. This can be good if you believe you’ll reach the VAT threshold at some point, because you’ll have adjusted your prices and eased into being VAT-registered earlier.
It also means you’re able to reclaim VAT on any business-related purchases if you pay more in VAT than what you’ve charged to customers in the same time period. This can help your business be more tax efficient if the things your business usually buys are subject to VAT, but the things you sell are not.
Volunteering for VAT does come with its considerations though. For example, if the majority of your suppliers aren’t VAT-registered, you won’t have any VAT to claim back on your purchases even though you’re collecting VAT from your customers – so you may end up with a VAT bill instead!
There are different rates of VAT that VAT-registered businesses must charge depending on the goods and services they supply. Generally speaking, most of the goods sold in a café fall under two categories. Standard rate VAT, which is 20%, and zero-rated VAT which, you guessed it, is 0%.
A big indicator as to how much VAT needs to be added is whether your customers decide to eat in, or take their food and drinks to go.
For customers who choose to eat in, whether that be inside or out (including any area provided by the establishment), the VAT rate on all food and drink will be charged at the standard rate. This includes items such as cakes, plain biscuits (not chocolate covered), and cold sandwiches or wraps that would otherwise be zero-rated if they were sold to take out.
Restaurants and pubs have similar rules to cafes, but because in most instances customers will be eating within the premises, the majority of things sold will fall under the standard-rate tax bracket of 20%. You can find a list of goods and their rates on the GOV website, but make sure you have a chat with your accountant too!
There’s a lot more depth to takeaway food and drink when it comes to VAT, so please bear with us as we get down to the nitty-gritty of it!
First things first – food preparation. If the type of food you sell isn’t ready for immediate consumption, and it requires your customers to assemble or reheat the food, it’s most likely classed as zero-rated. In instances like this, you must leave clear instructions on how to reheat the food, or how long they need to wait in order to consume it. Always speak to your accountant if you’re confused, as many things will automatically qualify as zero-rated!
If the food is considered ‘hot’ for VAT purposes, then you’ll apply the standard rate of VAT. But what counts as ‘hot’? HMRC will look at things like:
In most cases, cold food and drink to take away falls into the zero-rated category. Think popular takeaway items like sandwiches, cold pastries and fresh fruit. But like anything, there are exceptions.
Regardless of whether they are eaten in your establishment or not, things such as the following all fall under standard-rate VAT:
There’s a bit of a grey area from time to time, though. For instance, you could be confused if you sell cooked pasties that are originally warm when cooked but cool down through the day and are often served cold.
Any items that haven’t been kept warm after they’ve been cooked and aren’t advertised as hot should fall under the zero-rated category. But if you were to keep the pastries warm in a heated cabinet, they are likely subjected to 20% VAT.
If you’re VAT registered, you’ll need to:
This can be complex, so do speak to your accountant if you’re struggling, or appoint an agent!
Need help with VAT? Give us a call on 020 3355 4047 or get an instant online quote.
Subscribe to our newsletter to get accounting tips like this right to your inbox
Give an overview of the duties, functions and responsibilities of your job. Completing annual accounts, tax returns and VAT returns for clients….
Read MoreThis month we spoke to Alex, the owner of Amplify Brand Consultancy! Amplify Brand Consultancy | LinkedIn Hey Alex! Tell us about your…
Read MoreIf you have your own limited company, you may be aware of director’s loans already, where company directors lend money to the…
Read MoreThe number of monthly transactions you have entered based on your turnover seem high. A transaction is one bookkeeping entry such as a sale, purchase, payment or receipt. Are you sure this is correct?
Please contact our sales team if you’re unsure
It is unlikely you will need this service, unless you are voluntarily registered for VAT.
Are you sure this is correct?
Call us on 020 3355 4047 if you’re not sure.
You will receive our bookkeeping software Pandle for free, as part of your package.
You can use this to complete your own bookkeeping, or we can provide a quote to complete your bookkeeping for you.
Please select and option below:
Call us on 020 3355 4047 if you’re not sure.