The question “Is there VAT on food?” is one of the most complex areas of the UK tax regulations. In the UK, Value Added Tax (VAT) on food involves complex rules that apply to retailers, producers, and restaurants.
Although many essential groceries are zero-rated, other items have the standard 20% rate. If you run a UK business, you need to understand these VAT rules on food items to comply with HM Revenue and Customs (HMRC). This concise guide discusses VAT on food, why VAT is important, and how it impacts the food industry.
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What Is VAT in the UK?
Before answering the question, “Is there VAT on food?”, first, you need to understand what VAT is. Value-Added Tax (VAT) is a consumption tax applied at each stage of a product’s production and distribution.
Unlike a sales tax, VAT is an indirect tax collected by suppliers at the point of sale, who then remit it to the government. Certain goods and services may be exempt based on jurisdiction.
Exports are generally zero-rated for VAT in the UK. VAT is typically destination-based, with rates depending on the customer’s location.
Is There VAT on Food?
Yes, VAT is applied to food in the UK, but at different rates. Moreover, VAT on food can be either standard (20%) or zero (0%), depending on several factors such as:
- Food type
- Temperature
- Consumption location
Zero-Rated
Most food and drink for human consumption is zero-rated for VAT. Since these items are considered essentials, no VAT is added to the shelf price. Zero-rated food typically includes:
- Fresh fruit
- Vegetables
- Raw meat and fish
- Milk
- Eggs
- Cheese
- Bread
- Tea
- Coffee
Other than these, cold takeaway food is generally zero-rated.
Standard Rated
Items that fall into the category of luxury or non-essential are standard-rated at 20%. Standard-rated items include:
- Catering
- Confectionery
- Hot food
- Crisps
- Ice cream
- Sports drinks
- Soft drinks
- Alcoholic drinks
Restaurants must charge VAT on food and drinks consumed on-site. Additionally, hot takeaway food and home deliveries are also standard-rated.
Keep in mind that, if your business turnover is less than £90,000, you are not required to register for VAT. However, you may choose to register voluntarily to claim VAT on business expenses.
Is there VAT on Hot Food?
One of the biggest distinctions in the “is there VAT on food” debate involves how the food is served. The UK government classifies hot food as any served above ambient temperature that meets specific criteria:
- It has been heated for consumption
- Heated to order
- Kept hot after cooking
- Packaged to retain heat, or
- Advertised as hot
Therefore, a bacon sandwich sold hot is subject to standard-rate VAT, whether eaten on-site or taken away.
Cold Takeaway
Cold takeaways are generally zero-rated. For example, a cold sandwich from a supermarket is zero-rated.
Hot Takeaway
Hot takeaway food is usually standard-rated at 20% VAT. If food is provided hot for the purpose of being eaten hot, VAT must be charged.
Dine-In
If you eat food in a restaurant or cafe, you pay the full 20% VAT on food, even if the ingredients are normally zero-rated.
VAT for Food Producers
Understanding VAT for food producers is as important as getting an answer to: Is there VAT on food? For food producers, the VAT rate depends on whether the food is considered a luxury item or a basic necessity.
As a producer, most of your sales will be zero-rated (0%). However, you must still register for VAT once your taxable turnover exceeds the required threshold. If you are registered for VAT, you can claim VAT on:
- Raw materials
- Packaging
- Labelling
- Business utilities and services
- Machinery and equipment
Although your products are zero-rated, you can claim input VAT, which is a huge benefit.
Government guidance for food processing provides details on various food production categories. For instance, ingredients for home cooking and baking may also be zero-rated if they have nutritional value and are used as supplied, barring specified exceptions.
Is There VAT on Cake?
Another common question asked, alongside“is there VAT on food,” is “is there VAT on cake?” The answer is no. There is no VAT on cakes, and they are zero-rated.
Some products are classified as zero-rated or standard-rated depending on how they are used or marketed. For instance, sweet dried fruit is zero-rated as a baking ingredient but standard-rated as confectionery.
Similarly, marshmallows are zero-rated for baking and roasting. However, when they are sold as ready-to-eat sweets, they are more likely to be treated as confectionery and subject to standard rate VAT.
Cake vs Biscuits
There is a notable dispute going on in the UK over the Jaffa Cake case. Some say it’s a biscuit (taxed at 20%, if covered with chocolate) while others say it is a cake.
HMRC argued that Jaffa Cakes were biscuits, but McVitie’s successfully proved they were cakes in court. Jaffa Cakes remain VAT-free because all cakes are zero-rated for VAT. Similarly, gingerbread men with just two chocolate spots for eyes are zero-rated. But if they have more details of chocolate, they may be subject to standard-rated VAT.
VAT on Savoury Snacks
HMRC classifies three categories of savoury snack products subject to VAT at the standard rate:
- Potato snacks made from potato or potato flour/starch
- Roasted and salted nuts
- Expanded cereal snacks
For potato and cereal snacks to be standard-rated, they must be pre-packaged and ready to eat without further preparation. Roasted or salted nuts are standard-rated regardless of packaging. Snacks not fitting these categories are zero-rated.
Is There VAT on Milk?
When asking, Is there VAT on food, many businesses also ask if there is VAT on milk. The answer is no. Milk is zero-rated, meaning no VAT is charged.
Milk is included in basic food items, so it qualifies for the zero-rated category. This means there is no VAT, and businesses do not charge VAT on milk sales. Additionally, businesses can claim VAT on related costs.
However, sweetened or flavoured milk products may be subject to standard-rated VAT if they don’t fall into the zero-rating category.
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Final Thoughts
So, is there VAT on food? It depends on what you are buying, where you eat it, and how the item was prepared. The essential items are mostly tax-free to keep the cost of living down.
However, if a basic item is sold as part of a hot meal or a non-essential product, VAT is usually charged. It is crucial to understand these rules, as they can help you understand why your receipts look the way they do.