Food is zero-rated — Schedule 8, Group 1. Three things pull it to 20%: it is supplied in the course of catering, it is eaten on your premises, or it is hot takeaway food. "Premises" includes a shared food court. "Hot" means hot when handed over plus any one of five tests — including simply putting it in packaging that retains heat. A handful of items are standard-rated whatever happens, among them crisps, sweets and bottled water.
Run a cafe, a deli, a sandwich round or a food van? Send me one day's till report. I will tell you whether the zero-rated and standard-rated split matches what you actually sold. Eat-in versus takeaway is the most under-declared line in small food businesses and it is also the easiest to prove either way. Free, back to you within one working day, and nothing follows unless you ask for it.
Send me a till report.
The default, and the three ways out of it
Group 1 of Schedule 8 zero-rates food of a kind used for human consumption. Section 1.3 of VAT Notice 709/1 then sets out three tests, any one of which makes the supply standard-rated:
- Catering. Section 2.1: catering includes the supply of prepared food and drink and is characterised by a supply involving a significant element of service. Retail supplies of cold takeaway food are specifically excluded from it.
- Consumed on the premises. Paragraph 3.1: VAT at the standard rate on food and drink consumed on the premises where it is supplied.
- Hot takeaway food. Paragraph 4.2, with the detail in Note 3(b) to Group 1.
Everything else sold cold to take away is zero-rated under paragraph 4.1, unless it is one of the items standard-rated in all circumstances — the notice gives potato crisps, sweets and some beverages including bottled water as examples, and points to Notice 701/14 for the full list.
What counts as your premises
Paragraph 3.2 is wider than most operators assume. Premises means the areas occupied by the food retailer plus any area set aside for its customers to consume food, even where customers of other retailers also use it.
| Seating | Your premises? |
|---|
| Your own tables and chairs | Yes |
| Food court tables shared with other food retailers | Yes — named in the notice |
| Benches in a shopping centre | No |
| Motorway picnic areas | No |
| Airport or station waiting areas | No |
A unit in a food court does not get to treat its sales as takeaway. The shared tables are set aside for customers to eat at, so they are premises, and food eaten there is standard-rated whatever its temperature. Businesses that moved from a high street unit with no seating into a centre with a shared seating area frequently carry the old till configuration across with them.
The five hot-food tests
From 1 October 2012, Note 3(b) to Group 1 standard-rates takeaway food that is hot when provided to the customer and meets at least one of the following, per HMRC's guidance at VFOOD4220:
- 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 the customer in packaging that retains heat, or in any packaging specifically designed for hot food — whether or not that packaging was primarily designed to retain heat.
- It is advertised or marketed in a way that indicates it is supplied hot.
Test four catches people who have never thought about it. Food cooling on a rack that happens to be bagged in insulated packaging, or in a container designed for hot food, meets the test on the packaging alone — the intention behind the design is irrelevant. And test five is met by the menu board, not by the food: describe something as "served hot" and you have standard-rated it, whatever the temperature when it reaches the customer.
The arithmetic
A cafe selling a £6.00 toastie, price the same however it leaves the counter.
| How it is sold | Rate | VAT in £6.00 | Kept by the business |
|---|
| Eaten at your tables, or in a shared food court | 20% | £1.00 | £5.00 |
| Taken away hot, or in heat-retaining packaging | 20% | £1.00 | £5.00 |
| Taken away cold | Zero | £0.00 | £6.00 |
Same product, same price, a pound of difference decided by what the customer does next. That is why the till has to ask the question, and why "we treat it all as takeaway" is not a policy — it is an assessment waiting to happen.
Put a number on it: 200 eat-in covers a week coded as zero-rated takeaway is £1.00 × 200 × 52 = £10,400 a year of output tax under-declared, before interest, on one small cafe.
Three things to get right
- The till must capture eat-in or takeaway at the point of sale. Not estimated, not apportioned at the month end. HMRC will ask how the split is derived, and "roughly" is not an answer that survives.
- Check your packaging against test four. If you buy one insulated container and use it for everything, you may have standard-rated your cold sales without meaning to.
- Read your own menu board. Test five is about how you market the food, not how warm it is.
References above are to the VAT Act 1994 and HMRC's Notice 709/1 and VFOOD manual, linked in full. This page is a general reference and not advice on a particular business — if your own split does not match what is set out here, that is exactly the sort of thing worth sending over.