If you run a cafe, restaurant, pub, takeaway or food shop, VAT is rarely as simple as "food has no VAT". A cold sandwich eaten at a table is taxed differently from the same sandwich taken away. A flapjack and a chocolate biscuit can sit on the same shelf and carry different rates. Get the split wrong and you either overcharge customers or hand HMRC a backdated bill.
This guide breaks down how VAT actually applies to food, drink and hospitality. We'll cover the three rates, the all-important "eat-in" rule, the tests for hot takeaway food, the snacks and drinks that are always standard-rated, and a worked example you can map onto your own till.
It's written for UK food and hospitality businesses, and the figures are for the 2025/26 tax year.
What are the VAT rates on food and drink?
There are three VAT rates in the UK, and food and hospitality businesses deal with two of them most days.
| Rate | Percentage | Typical food and drink examples |
|---|---|---|
| Standard | 20% | Catering, eat-in meals, hot takeaway, alcohol, soft drinks, crisps, confectionery |
| Reduced | 5% | Rarely relevant to food sales today (applies to things like domestic energy) |
| Zero | 0% | Most cold groceries: bread, milk, plain biscuits, cakes, fruit, raw meat |
Rates verified against gov.uk VAT rates.
A quick word on the reduced rate. During the pandemic the government temporarily applied a reduced rate to much hospitality and catering. That temporary relief ended on 31 March 2022, and the rate on those supplies returned to the standard 20%. So if you read older guidance mentioning 5% or 12.5% on restaurant meals, that no longer applies. For current sales, your two real options are 20% or 0%.
Is all food zero-rated for VAT?
No, and this is the single biggest misconception we see. The starting point in the legislation is that most food for human consumption is zero-rated. But there's a long list of exceptions that are pulled back up to the standard 20% rate.
Broadly, food becomes standard-rated when it falls into one of these buckets:
- It's supplied in the course of catering (which includes eating in and hot takeaway).
- It's a specific excepted item, such as confectionery, crisps and other savoury snacks, ice cream, or most drinks.
So a loaf of bread from a bakery shelf is zero-rated. The same bakery's hot sausage roll kept warm under a heat lamp is standard-rated. The food itself hasn't changed much. What's changed is how it's sold.
Do I charge VAT on eat-in food?
Yes. If a customer eats or drinks on your premises, you charge VAT at 20% on that sale, regardless of whether the item is hot or cold.
This is the catering rule. HMRC treats anything consumed on the premises as a supply "in the course of catering", and catering is always standard-rated. A cold tuna sandwich is zero-rated if someone takes it away, but 20% the moment they sit at your table to eat it.
"Premises" is wider than just the inside of your shop. It includes any area you've set aside for customers to eat, such as:
- Tables and chairs on a patio next to your unit.
- Shared seating in a food court that your customers can use.
- A supermarket's seating area, inside or outside the store.
It does not include general public seating that isn't there specifically for your customers, such as benches in an airport terminal. The test is whether the seating is provided for the consumption of your food.
Is takeaway food subject to VAT?
It depends on temperature. Cold takeaway food is usually zero-rated. Hot takeaway food is usually standard-rated.
When is hot takeaway food standard-rated?
Hot takeaway food is standard-rated if it's hot at the point of sale (above the surrounding air temperature) and it meets at least one of these five tests:
- It's been heated so the customer can eat it hot.
- It's been heated to order.
- It's kept hot after cooking, for example under a heat lamp or on a spit.
- It's provided in heat-retaining packaging, such as a foil bag or insulated box.
- It's advertised or marketed as being supplied hot.
If a product ticks any one of those, the hot takeaway sale is 20%. A hot rotisserie chicken kept warm in the cabinet is standard-rated. A loaf that's warm simply because it's just come out of the oven, sold to cool and eat later, is not caught by the "freshly baked" point and stays zero-rated.
What about cold takeaway food?
Cold food taken away is zero-rated, with one big caveat: it must not be an item that's always standard-rated in its own right. A cold meal-deal sandwich taken away is zero-rated. A cold can of cola or a bag of crisps taken away is still 20%, because drinks and crisps are excepted items (see the next section).
Which food and drink is always standard-rated?
Some items carry 20% VAT no matter how they're sold, hot or cold, eat-in or takeaway. These are the excepted items. The common ones for food businesses are:
- Most drinks. Alcohol is always 20%. Soft drinks, bottled water, and energy or sports drinks are standard-rated. Hot drinks like tea and coffee served to a customer are standard-rated too.
- Confectionery. Sweets, chocolate bars and chocolate-covered biscuits are 20%.
- Crisps and savoury snacks. Potato crisps, similar packaged snacks, and roasted or salted nuts are standard-rated.
- Ice cream and similar. Anything designed to be eaten while frozen is 20%.
A note on the famous cake-versus-biscuit line. Cakes and plain biscuits are zero-rated as food. A biscuit wholly or partly covered in chocolate is standard-rated. The reason a Jaffa Cake is zero-rated is that HMRC accepts it's a cake, not a chocolate-covered biscuit. It sounds trivial, but for a bakery selling thousands of units a week the rate difference is real money.
If your range straddles these lines, our tax advisory team can map each product to the right rate so your till is set up correctly from day one.
Worked example: a cafe's mixed sale
Illustrative example. Sofia runs a small cafe and takeaway counter. A customer orders the following and takes everything away (no eat-in):
| Item | Treatment | Net price | VAT rate | VAT | Gross |
|---|---|---|---|---|---|
| Cold prawn sandwich (takeaway) | Zero-rated cold food | £4.00 | 0% | £0.00 | £4.00 |
| Hot sausage roll (kept hot) | Standard-rated hot takeaway | £2.50 | 20% | £0.50 | £3.00 |
| Can of cola | Excepted item (drink) | £1.20 | 20% | £0.24 | £1.44 |
| Plain shortbread biscuit | Zero-rated food | £1.00 | 0% | £0.00 | £1.00 |
| Totals | £8.70 | £0.74 | £9.44 |
The maths: VAT is £0.50 + £0.24 = £0.74. Net is £4.00 + £2.50 + £1.20 + £1.00 = £8.70. Gross is £8.70 + £0.74 = £9.44.
Now imagine the same customer sits down to eat in. The catering rule kicks in, so the cold sandwich and the biscuit also become standard-rated. VAT on the order would then be 20% of the whole £8.70, which is £1.74, not £0.74. Same products, very different VAT, purely because of where they're eaten. That's exactly why your point-of-sale needs an eat-in button.
Quick decision steps for your till
When you're unsure of the rate on a sale, work through these in order:
- Is it eaten on the premises? If yes, it's 20%. Stop here.
- Is the item always standard-rated? Drinks, confectionery, crisps and ice cream are 20% regardless. If yes, stop here.
- Is it hot takeaway that meets a hot-food test? If yes, it's 20%.
- Otherwise it's cold takeaway food. Zero-rated.
Building these rules into your point-of-sale and your bookkeeping is the practical bit. Accurate daily coding is what makes a clean VAT return possible later, which is where solid bookkeeping support earns its keep for hospitality businesses.
When do I have to register for VAT?
You must register for VAT once your VAT-taxable turnover exceeds the registration threshold of £90,000 in any rolling 12-month period, or if you expect to cross it in the next 30 days. This threshold is current from 1 April 2024, per gov.uk.
One catch for food businesses: zero-rated sales still count as taxable turnover for the threshold. So a busy bakery selling mostly zero-rated bread can still be required to register even though much of what it sells carries no VAT. Once registered, the upside is you can usually reclaim VAT on your costs.
Hospitality is a high-volume, low-margin sector, and travel and tourism operators face their own VAT quirks too. If you run a hotel or restaurant, see how we support hotels and restaurants; if you arrange trips and packages, our work with travel agencies covers the margin scheme issues that catch operators out.
Want certainty on what to charge? Book a free 20-minute call with a Zmartly accountant and we'll review your menu, your till coding and your VAT position. Get in touch.
Frequently asked questions
Is there VAT on takeaway coffee?
Yes. Hot drinks such as tea and coffee are standard-rated at 20% whether you drink them in or take them away. Drinks are excepted items, so the eat-in or takeaway distinction doesn't change the rate.
Do I charge VAT on a cold sandwich?
If the customer takes it away, a cold sandwich is zero-rated. If they eat it on your premises, it becomes standard-rated at 20% under the catering rule.
Why are some biscuits zero-rated and others 20%?
Plain biscuits and cakes are zero-rated as food. A biscuit that's wholly or partly covered in chocolate is treated as confectionery and is standard-rated at 20%. The classification of borderline products has been argued in court more than once.
Is hot food always standard-rated?
Hot food is standard-rated when it's hot at the point of sale and meets at least one of HMRC's five hot-food tests, such as being heated to order or kept hot under a lamp. Food that's merely still warm from baking, and sold to be eaten later, can stay zero-rated.
Does zero-rated food count towards the VAT registration threshold?
Yes. Zero-rated sales are still taxable supplies, so they count towards the £90,000 registration threshold for 2025/26. A business selling mostly zero-rated food can still be required to register.
Can I reclaim VAT on food I buy for my business?
Once you're VAT-registered, you can generally reclaim VAT on standard-rated business purchases, subject to the usual rules. There's no VAT to reclaim on zero-rated stock because none was charged.
