How Do VAT Rules Work for Cafes, Restaurants, and Takeaways

Owning a food business is super exciting. Showcasing delicious creations and seeing happy customers. But things get less exciting when it comes to VAT registration. Sometimes, it takes the joy of owning a business, and we understand it completely. It is a tricky game, and you often wonder if your chocolate-covered biscuit needs VAT added to it. Or is your cream-filled cake can be used for VAT purposes?

This blog explains how VAT rules work for cafes and how they can diminish the joy of owning a food business.

Let’s delve into the details and learn the VAT rules for your business.

What is Value Added Tax Return?

VAT is a value-added tax return, a consumption tax charged on a business’s goods and services. Registered companies have to pay VAT on services and companies.

Who qualifies for mandatory VAT registration?

Whether you need to register for VAT depends on the circumstances.

Here’s a breakdown when you need to register for VAT

– When your company’s taxable turnover in any rolling month reaches the VAT threshold of £90000.
– If you expect your taxable turnover to exceed the VAT threshold within 30 days.
– Your nationality and business are outside the UK, and you supply goods and services all over the UK despite hitting the VAT threshold, which means you must register.

Could Voluntary VAT Registration Have Benefits?

Owing a cafe or restaurant means VAT registration is a must. This is the best option if you are about to hit the VAT threshold, as it allows you to adjust the price and helps with all the VAT requirements.

Sometimes, your VAT expenses exceed the amount of VAT you charge customers within a specific duration. So, in such cases, voluntary VAT registration enables you to reclaim VAT on business-related purchases. This is best when you purchase VAT-taxable items for your business, as it will improve tax efficiency.

However, every benefit and saving has a downside, which is the case with voluntary VAT registration. When your suppliers are not registered, you can’t claim back VAT on goods you purchase from them. In such cases, you must get VAT from your customers and then end up with a VAT bill.

VAT Rules Work for Cafes: How Does it Work?

The VAT rules for cafes depend on the business situation, meaning every business’s supply of goods and services has different rates. Most of the goods sold in cafes fall into two categories.

– Standard rate VAT, which is 2.0%
–  Zero rate VAT, which is 0%

Another factor is that the VAT charged on goods depends on whether customers eat in the cafe or prefer takeout.

If the customer chooses to have food in and out, standard VAT will be charged. This includes cakes, plain biscuits, cold sandwiches, or wraps.
These items would be zero-rated if they were sold to take out.

It is essential to record every zero-rated good, which still needs to be recorded and added to VAT returns and invoices as normal.

What About Hot Food and Drinks?

A standard VAT rate is implemented on hot foods. But what food is considered as hot? Let’s detail how HMRC looks at things like hot food. A standard VAT rate is implemented if the food is meant to be eaten as hot. Just like burgers, chips or a latte
– If the temperature of items exceeds the room temperature, food items are hot.
– It is considered hot if the customer asks you to heat the food.
– Insulated packaging for food items also showcases the item is hot.
– If you label it “freshly baked” or “straight from the oven,” the food will be considered hot.

What About Cold Foods and Drink?

Cold food and drinks are considered to be a zero-rated category. However, the most common takeaway items include the following.
– Ice cream
– Chocolates
– Sweets
– Fruit Juices
– Bottled Water

But this zero-rated category is confusing. Let us clear you with an example.

• If freshly baked pastries are in warm condition, cool them down to room temperature and serve them cold.
• Such items not advertised as hot and cooled at room temperature are advertised as zero-rated categories.
• If you keep your pastries fresh and warm in a heated cabinet, they are subjected to 20% VAT.

I Run a Restaurant: What VAT Should I Pay?

Yes, you will be charged VAT. Restaurants and pubs have the same rules as cafes. Customers usually eat indoors; most items fall under the 20% tax bracket.

Are the VAT Rules working for cafes different from the Takeaway Service I Provide?

VAT is much more complex for food and drink, so owners are always confused about VAT-related matters. We break down every point in detail.

– If the food you sell isn’t ready for immediate consumption and requires heating, it will be zero-rated.
– However, you must leave instructions for customers on how to reheat the food and how long it takes to consume it.

Responsibilities as a VAT Registered Business?

Being a food business owner, you should completely understand VAT rules work for cafes. So you should

– Charge the exact amount from your customers and record this information.
– Keep track of your pay for your business.
– Inform HMRC of every record of your VAT return so they can determine your VAT bill or refund.
– This usually takes up to 3 months, and the frequency might vary depending on the VAT scheme.
– If your VAT return shows that you owe more than you paid, you must pay HMRC the difference.