Is there VAT on food? Get the scoop on taxes in the food industry
Nothing is certain in life except death, taxes, and the occasional food coma. But when taxes and food collide a perplexing question springs to mind: Is there VAT on food?
The answer is kinda, sorta, sometimes.
The rules around VAT on food are incredibly specific, and often the result of specific court cases that have set unique legal precedents. Let's take a nice close look at how VAT impacts the food industry, why the definition of hot food is so important and some famous exceptions to common VAT wisdom.
Grab a snack and dig in 👇
Is there VAT on food
In the UK most food items you’d buy from the shops or supermarket for human consumption are zero rate VAT. But meals you’d eat in a restaurant or takeaways are standard rate VAT. Specific snacks like crisps, ice cream and soft drinks are standard rate, meanwhile, milk is zero-rated.
Confused? It’s hard not to be.
The premise behind VAT on food is it should only be charged on luxury food items, not on necessary food for human consumption. But what exactly constitutes a luxury food item has been heavily debated throughout the years. Specific legal cases have set certain precedents and created unique edge cases meaning the law applies VAT on food in a variety of ways.
As a general rule of thumb:
- Cold takeaway food and drinks are usually zero-rated VAT, with some exceptions like alcoholic drinks, confectionery, crisps, sports drinks, ice cream, soft drinks and mineral water
- Food that’s served hot is always standard rate VAT
- If cold food is eaten on the premise of a restaurant or pub its standard rate VAT
For our visual learners out there:
[How it differs]
Eaten off the premises
Eaten on the premises
*Aside from specific exceptions such as alcoholic drinks, confectionery, crisps, sports drinks, ice cream, soft drinks and mineral water.
Remember these are generalisations to give you an idea of why the government makes certain decisions around VAT for food, but there are specific legal requirements for every kind of food. So if you have a food service business and aren’t certain of the specific tax rate for your food products don’t assume you can apply the above universally.
You still need to look up your unique case on the government's website.
Does food have 20% VAT?
Only certain foods, or foods eaten in certain circumstances are charged 20% VAT. Most VAT on food for human consumption is charged at 0%, so it doesn’t actually impact the buyer just the way the company selling the food runs its accounts.
The best way to figure out whether food will be charged at the standard rate of 20% is to ask the following three questions:
- Is it within the ordinary meaning of catering?
- Is it for on-premises consumption?
- Is it hot takeaway food?
If the answer is Yes to any of the above, then that food is likely to be subject to standard rate VAT. If the answer is No, it’s still possible that it’s considered a luxury food item and subject to the standard rate.
Examples of VAT on food at 20% include:
- Ornamental vegetables
- Juice and juice concentrates
- Cereal, muesli and similar sweet-tasting bars
- Shortbread biscuits partly or wholly chocolate-covered
- Coconut ice
- Chocolate buttons (except packets of mini-chocolate buttons sold for use in baking which are clearly necessary for consumption)
- Chocolate flakes (except when they are supplied within the bakery and ice cream industries, when they may be zero-rated if sold in packs of one gross or more, clearly labelled ‘for use as cake decorations only: not for retail sale’)
- All wholly or partly coated biscuits including biscuits decorated in a pattern with chocolate or some similar product
- Chocolate-covered shortbread
- Roasted or salted nuts
- Gingerbread men decorated with chocolate unless this amounts to no more than a couple of dots for eyes
- Ice cream wafers partly covered in chocolate such as ‘chocolate oysters’
- Alcoholic drinks
VAT and hot food
The government defines hot food as food that’s served above ‘ambient air temperature’, and satisfies one or more of the following:
- 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 a customer in packaging that retains heat (whether or not the packaging was primarily designed for that purpose) or in any other packaging that is specifically designed for hot food.
- It is advertised or marketed in a way that indicates that it is supplied hot.
So every part of a bacon sandwich from a hot food truck would be liable for standard rate VAT. Even if you were eating it off the premises and only the bacon itself had been heated “for the purposes of” being consumed hot.
Is there VAT on food in restaurants and pubs?
Standard rate VAT is applied to all food for human consumption eaten on the premises of a pub, restaurant or designated nearby areas like food courts. If the food is intended to be eaten hot, then even if it’s taken away or delivered to be eaten outside of the premises standard rate VAT will apply.
Is there VAT on takeaways?
HMRC defines takeaway food as drinks or food consumed off-premises. Takeaway food is only exempt from VAT if it is served cold. If you get hot food like pizza to go, you will still be charged 20% VAT.
Is VAT on food still 5%?
No, VAT on certain kinds of food is no longer 5% although it was for a period of time during the pandemic. VAT was temporarily reduced from 20% to 5% for the hospitality industry to encourage customer demand, boost the economy and get people back to eating out in restaurants.
This cut lasted from July 2020 to September 2021. From the 1st of October that year the government increased it to 12.5% before settling back at the standard 20% in March 2022.
There are no current government plans to cut VAT rates in hospitality again.
What food has no VAT in the UK?
In the UK, most food items for human consumption are zero-rated meaning the consumer is not charged anything extra on top. Here are some examples of food items that are currently zero-rated for VAT in the UK:
- Bread and bakery products
- Fresh fruit and vegetables
- Meat, fish, and poultry (uncooked or in the process of being cooked)
- Tea, coffee, and cocoa (but not chocolate drinks)
- Milk and dairy products (except for ice cream and some other dairy-based desserts)
- Rice, pasta, grains, and cereals (uncooked or in the process of being cooked)
- Jams, marmalades, honey, and spreads
Remember that lots of foods for human consumption that are often thought of as zero-rated, like crisps and confectionary, are actually standard rated.
Is food VAT exempt or zero-rated?
Food for human consumption is usually zero-rated for VAT rather than exempt from VAT. This means the same thing for the consumer, they won’t be charged VAT, hurray! But it will be a very different process for the accountant processing the books of a company in the food industry.
For businesses, the main difference between zero-rated and exempt VAT is that they can claim back VAT they paid out on things related to selling zero-rated items, but not for exempt items. This means businesses selling zero-rated items tend to get money back from the government, in the form of VAT they’ve paid on their supplies and equipment. Whereas businesses selling VAT-exempt items won’t get that VAT they’ve spent on their supplies and equipment back.
Is there VAT on bread?
Most traditional bakery products, like bread, biscuits and cakes, are zero-rated. But some kinds of confectionery are standard-rated like biscuits wholly or partly covered in chocolate.
A useful rule of thumb is to consider how luxurious it is, and how necessary it is for the daily lives of the consumers. But this isn’t always true. For example, a millionaire’s shortbread, a shortbread with a layer of caramel and chocolate on top is zero-rated, but a shortbread partly or wholly covered in chocolate is standard-rated.
For further examples of bakery products which are usually zero-rated but sometimes are standard-rated checkout HMRC’s food products notice, or take a look at some of our favourites:
Bread and bread products such as rolls, baps and pita bread
When used as part of a hot take-away meal, like a burger bun, these items would become standard rated
Cakes including sponges, fruit cakes, meringues, commemorative cakes such as a wedding, anniversary or birthday cakes
When supplied as part of meal or takeaway these items would become standard-rated
Caramel or ‘millionaire’s’ shortcake consisting of a base of shortbread topped with a layer of caramel and (usually) chocolate or carob
Shortbread biscuits partly or wholly chocolate-covered
Is there VAT on milk?
No, milk is zero-rated and therefore has no VAT. Sounds simple enough doesn’t it?
But there is actually specific and extensive guidance around what constitutes a milk drink in the context of VAT.
Milk-based drinks such as milkshakes are zero-rated as preparations of milk. Milk replacements like soya or oat milk are also zero-rated as they are necessary replacements for those allergic to dairy products. Coconut milk, however, is not zero-rated as a milk item, but it may be zero-rated as a food when sold as a culinary ingredient.
When it comes to milk-derived powders usually the 50% rule is applied. According to UK VAT rules, if a drink contains at least 50% milk or milk derivatives by volume, then its a food product and is zero-rated for VAT purposes. This means that no VAT is charged on the sale of the drink. On the other hand, if a drink contains less than 50% milk or milk derivatives by volume, then it is considered to be a standard-rated beverage and is subject to VAT at the standard rate of 20%.
Is VAT charged on coffee?
Coffee granules or beans bought from a shop are usually zero-rated for VAT purposes, as they are intended for home consumption and not considered ‘hot food’. On the other hand, warm prepared coffee purchased from a cafe, pub or restaurant for immediate consumption on or off the premises is considered standard-rated, meaning it is subject to VAT at the standard rate.
This is because warm food and drinks sold for immediate consumption are generally considered standard-rated.
Is there VAT on nuts?
There is 0% VAT on unprepared nuts that are still in their shells, but if a nut has been shelled then they are standard rated. An exception to this is peanuts which are still zero-rated even when out of their shells.
Why are Jaffa cakes VAT free?
In 1991, McVities, the producer of Jaffa Cakes, went to court to fight against the value-added tax charged on Jaffa Cakes. The question was whether Jaffa Cakes should be classified as a zero-rated cake or a standard-rated chocolate-covered biscuit.
To prove that Jaffa Cakes were indeed cakes, McVitie's presented several compelling arguments:
- The products name contains the word ‘cake’
- The ingredients including flour, eggs and milk are more similar to a cake recipe than a biscuit
- The product's texture is more cakelike
- The fact that Jaffa cakes become hard when stale, like regular cakes do, while biscuits become soft
The court ultimately ruled in favour of McVitie's, stating that Jaffa Cakes were indeed cakes and therefore zero-rated for VAT purposes. This landmark case has since set a precedent for other food items that may straddle the line between cake and biscuit and has resulted in millions of pounds of savings for McVitie’s.
The more you know!
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