Written for owners of restaurants, cafes and coffee shops, pubs and bars, takeaways and delivery kitchens, food trucks and bakeries with seating, anywhere in the UK.
The short version
- Charge VAT on anything eaten on your premises.Seating set aside for your customers counts as premises, terrace and shared seating included. Set the till codes to match.
- Know which takeaway items still carry VAT.Hot food and hot drinks to take away carry VAT. So do items like crisps, confectionery, soft drinks and alcohol, even cold.
- Word your service charge on purpose.A compulsory service charge carries VAT. A genuinely optional one, which customers can refuse, does not.
A cafe or takeaway can sell the same sandwich at two VAT rates in the same minute. If the till splits it wrongly, you either overpay VAT on every cold takeaway sale or undercharge it on food eaten in. The four questions below sort almost every product, and the service charge wording sorts the rest.
The basic rule
Food is zero-rated unless it is supplied in the course of catering or is an excepted item. Catering covers anything eaten on the premises where it is supplied, and hot food to take away. The standard rate is 20%. As of Oct 2026.
VAT Act 1994 Sch 8 Group 1 and its Notes; VAT Notice 709/1
Four questions for every product
- Will it be eaten on your premises?Premises means any area set aside for your customers to eat, even if shared: the dining room, the terrace and garden, and food court or market hall seating your customers use. A cold sandwich eaten at your table is standard-rated; taken away it is zero-rated.
- Is it hot?Food heated to be eaten hot and still above ambient (room) temperature when you hand it over is standard-rated, and so is food kept hot, put in heat-retaining packaging or marketed as hot. Food that is just cooling after baking, and not kept or marketed hot, stays zero-rated. Hot drinks to take away are standard-rated.
- Is it an excepted item?These are standard-rated even cold and taken away: confectionery (chocolate biscuits included, plain cakes excluded), crisps and salted nuts, ice cream, alcohol, soft drinks, fruit juice and bottled water.
- Is it sold in a bundle?A meal deal at one price that mixes zero-rated and standard-rated items is split fairly and reasonably (VAT Act 1994 s.19(4)), usually by each item's standalone price. Record the method and keep to it.
| Zero-rated share: the sandwich, by standalone price | £3.23 |
| Standard-rated share: the crisps and the can | £2.77 |
| Meal deal price | £6 |
| VAT in each deal | £0.46 |
£2.77 x 1/6Sold separately the sandwich is £3.50, the crisps £1.20 and the can £1.80, so the sandwich is £3.50 of £6.50 of standalone value. On 20,000 deals that is £9,231 of VAT, against £20,000 if every deal were treated as standard-rated. As of Oct 2026.
Premises is read widely. A cold sausage roll taken away is zero-rated, but the same roll eaten on your covered terrace is standard-rated.
Service charge and tips
A compulsory service charge is part of the price of the meal and is standard-rated, whoever ends up with it. A genuinely discretionary service charge, which the customer can refuse, and tips freely given are outside the scope of VAT.
VAT Notice 709/1
| Output VAT if the charge is compulsory (1/6 of the charge) | £16,666.67 |
| What is left of the charge after VAT | £83,333.33 |
| Service charge collected in a year | £100,000 |
If the charge is genuinely discretionary, the whole £100,000 is outside the scope of VAT. If it is compulsory, it carries £16,666.67 of output VAT, and under the total price rule it must be included in the prices on your menu, not only in a line at the foot. As of Oct 2026.
Vouchers, deposits and no-shows
- A single-purpose voucher, where the VAT is known when you sell it (such as meals on your premises only), carries VAT when it is sold.
- A multi-purpose voucher carries VAT only when it is redeemed, so one that is never used never bears VAT.
- Retained deposits and no-show fees are usually standard-rated (Revenue and Customs Brief 13 (2018)). Cancellation fees under your booking terms follow Revenue and Customs Brief 2 (2022). Have your accountant check the wording on your booking terms.
| Output VAT under normal accounting (£140,000 x 1/6) | £23,333.33 |
| Less input VAT reclaimed | -£4,000 |
| VAT paid under normal accounting | £19,333.33 |
| Saved on the Flat Rate Scheme at 12.5% for catering (£17,500 paid) | £1,833.33 |
£19,333.33 minus £17,500You can join if you expect taxable takings, excluding VAT, of £150,000 or less over the next 12 months. The flat rate (12.5% for catering, 6.5% for pubs) applies to all VAT-inclusive takings, zero-rated sales included, so a takeaway with many cold sales usually loses on it. Ask your accountant to compare both methods before you join. As of Oct 2026.
Asked in Greymill
Food eaten anywhere set aside for your customers to eat counts as catering. That includes the terrace, the garden and shared food court seating, not just your four walls.
VAT at 20% (As of Oct 2026): a sixth of a VAT-inclusive price
A week: £1,200 / 6 = £200
A year (52 weeks): about £10,400
Still zero-rated: the same cold sausage roll taken away. Hot takeaway food is standard-rated either way.
Fix the till today: separate EPOS (till) codes for eat-in and takeaway, with terrace sales on eat-in.
Then talk to your accountant about the sales already rung through. Say the word and I will draft your questions.
Ask it about your own business
Paste this into Greymill with your own figures, and Tax & Bookkeeping works it through for your business.
I run a restaurant, cafe or bar in the UK. We sell [describe: eat-in, takeaway, hot food, cold food, drinks], have [a terrace, garden or shared seating], and add a service charge of [rate] that is [compulsory or optional]. We also sell [meal deals, vouchers] and take [deposits or no-show fees]. Check how each line should be rated for VAT, set out the EPOS VAT codes I need, and draft the questions for my accountant.
More for restaurants, cafes and bars in the UK
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- Changing hours, running an event or losing your DPS without stopping alcohol salesWhat a licensed site can change during the year, by which route and on what notice, and what to do the day your designated premises supervisor walks out.Read the lesson
- Taking, renewing or buying a lease without losing your right to stayWhether your lease has 1954 Act protection decides whether your fit-out has a future, and the deadline in a section 25 notice or a pub tie trigger cannot be missed.Read the lesson
- Sharing tips fairly and paying casual staff without a claimHow to set up a tipping policy and tronc that stand up, what a casual hour really costs once holiday pay is added, and the rota rules that catch late-night sites.Read the lesson
- Getting more covers without falling foul of the price, review and platform rulesThe channels you control earn the most, and the rules on showing service charges, asking for reviews and signing platform deals decide what you can do to grow.Read the lesson
- An allergic reaction, a food poisoning complaint or the council closing your kitchen: the first 24 hoursWhat to keep, who to call and what not to say when something goes wrong in the kitchen, and the insurance conditions that decide whether you are covered.Read the lesson
Open the interactive lesson · Every restaurants, cafes and bars lesson · What Greymill knows about the trade
Sources
The primary sources behind this lesson, checked Oct 2026.
- VATA 1994 Sch 8 Group 1, items and excepted items, Notes 3A and 3B (VAT on food and drink: catering, takeaway and premises)
- VAT Notice 709/1 sections 3 and 4 (VAT on food and drink: catering, takeaway and premises)
- VAT Notice 733 paragraphs 3.1, 3.5, 4.4, 4.7, 11.1 to 11.2 and 12.2 (VAT on food and drink: catering, takeaway and premises)
- Revenue and Customs Brief 5 (2026), Children's meals (updated 27 July 2026) (VAT on food and drink: catering, takeaway and premises)
- Revenue and Customs Brief 13 (2018); HMRC manual VATSC05825; Revenue and Customs Brief 2 (2022) (VAT on service charges, tips, vouchers and deposits)
- CMA209, Presenting the total price; DMCC Act sections 225 to 230 and 237 (Winning trade: reviews, price display and platforms)
- Sch 20 paras 13 and 14 (Winning trade: reviews, price display and platforms)
- Regulation (EU) 828/2014 as retained (Winning trade: reviews, price display and platforms)
- Price Marking (Food and Drink Services) Order 2003 arts 3 and 4 (Winning trade: reviews, price display and platforms)