If you are a business and you turn over more than £81,000 per annum you must register for VAT and then charge VAT on appropriate sales. However, if you are a food business deciphering exactly which products that you sell are liable for VAT can be a challenging riddle to decipher.
As you will know, some food items are subject to VAT and some are not. For example, vegetable crisps are zero rated whereas potato crisps are standard rated, cakes are zero rated whereas biscuits covered in chocolate are standard rated (although chocolate flavoured biscuits, or those with chocolate chips baked into the mixture are zero rated) and baked Alaska is zero rated whereas all other ice creams and ice lollies are standard rated.
However, when it comes to selling food items to the public there is another layer of complexity to get to grips with, as whether the food is sold hot or cold and whether it is eaten on your premises or taken away can then change the VAT rating of some items.
Eat in vs take away
Here the rules are quite simple. If you sell any food product, regardless of whether it is usually a zero rated item and it is being consumed on your premises then you must charge the standard rate of VAT.
The only potentially grey area here is the definition of ‘premises’. For the purposes of VAT, ‘premises’ is defined as any area owned by the business where space is provided for the consumption of food. The premises can also include any area with chairs and tables on the pavement, concourse or other adjacent area, and these areas include those shared with other premises such as in a food court.
Hot vs cold
Any food which is served, and is intended to be consumed, hot (by ‘hot’ the rules generally mean anything the ambient temperature) is subject to the standard rate of VAT. However, there are various interpretations of this rule and it could be easy to fall foul of this.
Therefore to be defined as ‘hot’, and thus standard rated, the food must meet any one of the following criteria:
- It has been cooked or heated to order
- It has been heated expressly for the purposes of it being supplied and consumed hot
- It is advertised or marketed as being supplied hot
- It has been cooked or heated and then kept hot
- It has been supplied in packaging that keeps it hot (regardless of whether that packaging has been designed for that purpose)
One important category of food which is not classed as hot for VAT purposes is bakery products e.g. pasties and pastries which would normally be zero rated. If they have been batch baked in the morning but are in the process of cooling when they are sold they can still be classed as cold and will be zero rated as long as they are eaten off the premises.
Please see the below table which should hopefully clarify when and where VAT should be charged in response to hot and cold food sales.
|Is The Food Served|
|Zero Rated||Is The Food To Be||Taken Away||Zero Rate||Standard Rate|
|Is The Item Normally||Eaten In||Standard Rate||Standard Rate|
|Standard Rated||Is The Food To Be||Taken Away||Standard Rate||Standard Rate|
|Eaten In||Standard Rate||Standard Rate|
If you are still confused about your VAT liabilities then contact Handpicked Accountants today. Our knowledgeable team will be able to put you in touch with exceptional accountancy firms in your area that are experienced in dealing with VAT issues.