Written for owners of independent shops and small chains in the UK: convenience and grocery, newsagents and off licences, fashion, gifts, hardware, and garden and farm shops.
The short version
- Code every till line to its own rate.Food is zero-rated, but crisps, confectionery, ice cream, soft drinks, juice and bottled water are standard-rated.
- Notify HMRC of large or deliberate errors.Small, non-deliberate errors can go on a return. Larger or deliberate ones are notified to HMRC, after a chartered tax adviser checks them.
- Check your rateable value and reliefs yearly.In England, the bill is rateable value times the multiplier, less reliefs. If the value looks wrong, use Check, Challenge, Appeal.
"All food is zero-rated" is a costly mistake in a convenience store. Food is zero-rated, but the law lists exceptions that are standard-rated, and many of them are everyday shop lines. If the till codes them as food, you under-declare VAT on every sale and pay it later out of your own margin.
The food zero rate and its exceptions
Food is zero-rated except the excepted items, which are standard-rated at 20%. Food or drink for consumption on your premises counts as catering and is generally standard-rated. Hot takeaway food is standard-rated when it is hot when handed over and meets at least one of the five statutory tests. As of Oct 2026.
VAT Act 1994 Sch 8 Group 1; HMRC VAT Notice 701/14
Food that is still standard-rated
- Ice cream and lollies.
- Confectionery, including chocolate biscuits but not other biscuits or cakes.
- Alcoholic drinks.
- Other drinks, including juice, bottled water and soft drinks. Tea, coffee, cocoa and milk drinks stay zero-rated.
- Crisps, savoury snacks and roasted or salted nuts.
- Pet food and home brewing kits.
Case law settles the borderline: Jaffa Cakes are cakes, so zero-rated, and Pringles are standard-rated as crisps. Beyond food, books and newspapers, young children's clothing and footwear, and women's sanitary products are zero-rated; children's car seats are 5%; vapes, tobacco, household goods, cards and toys are standard-rated. As of Oct 2026.
| Zero-rated food | £18 |
| Standard-rated crisps, drinks and a candle | £12 |
| Basket, VAT-inclusive | £30 |
| VAT due | £2 |
£12.00 / 6 = £2.00, so net sales are £28.00Code the whole basket as food and the till under-declares that £2.00.
Choosing a VAT retail scheme, and the Flat Rate trap
Retail schemes work out the VAT you owe from your gross takings. If your EPOS records the rate on each item, the point of sale scheme is the answer, and it has no turnover limit. Apportionment Scheme 1 (VAT-exclusive retail turnover up to £1 million) splits takings by what you bought at each rate, and fits only where both rates earn similar margins. As of Oct 2026.
The scheme splits takings by what you bought, not what you sold, and its annual adjustment does not cure a margin mismatch.
The flat rate costs that shop about £1,833 a year more. The retail rates (4% for food, confectionery, tobacco, newspapers or children's clothing, 7.5% for other retailing) apply to all takings, zero-rated ones included. Whether it costs you more depends on your own sales and purchases, so work out both before you join. As of Oct 2026.
If the till has been wrong
| Year 1: VAT on £48,000 of standard-rated takings (£48,000 / 6) | £8,000 |
| Year 2: the same again | £8,000 |
| VAT under-declared over 2 years | £16,000 |
£16,000 is over both £10,000 and 1% of a £67,500 box 6 (£675), so it cannot be adjusted on a return: it must be notified to HMRC.
Correcting a VAT error
Net errors up to £10,000, or up to 1% of box 6 on the correcting return capped at £50,000, can be adjusted on that return if they were not deliberate. Larger or deliberate errors are notified through HMRC's online VAT error correction service; use form VAT652 only if you cannot use the service. The normal time limit is 4 years. Disclosure can reduce a careless-error penalty, but a nil penalty is not guaranteed. As of Oct 2026.
VAT Notice 700/45; Finance Act 2007 Sch 24
Ask a chartered tax adviser to check the figures, the disclosure and the penalty position before you submit, then correct the till coding.
Business rates
In England, the bill is rateable value times the multiplier, less reliefs, with transitional relief limiting revaluation increases. The revaluation took effect on 1 April 2026, based on rents at 1 April 2024. For 2026/27, qualifying retail, hospitality and leisure properties outside the City of London use 38.2p below £51,000 rateable value and 43.0p from £51,000 to £499,999. Small Business Rate Relief is 100% up to £12,000 rateable value, tapering to £15,000. As of Oct 2026.
| Boutique at £28,000 rateable value x 38.2p | £10,696 |
| Neighbour at £56,000 rateable value x 43.0p | £24,080 |
Both before transitional relief. Twice the rateable value costs more than twice as much, because the higher multiplier applies to the whole value from £51,000.
In England, if the rateable value looks wrong, use Check, Challenge, Appeal: Check with the VOA online, Challenge within 4 months of the Check decision, and appeal to the Valuation Tribunal within 4 months of the Challenge decision. Get any contingency fee in writing. Wales, Scotland and Northern Ireland set their own multipliers and reliefs.
Figures in this lesson were rechecked against Budget 2026 (28 October 2026), which set the 2027/28 multipliers. As of Oct 2026.
Asked in Greymill
VAT missed each year: £48,000 / 6 = about £8,000 (the VAT inside those takings)
Over two years: about £16,000
Limit for a return: net errors up to £10,000, or up to 1% of box 6 capped at £50,000, if not deliberate (As of Oct 2026)
1% of your box 6: £675
Yours is over both.
In order:
1. Have a chartered tax adviser check the figures, the disclosure and the penalty position.
2. Notify HMRC through its online VAT error correction service.
3. Recode the till: crisps, confectionery and soft drinks are standard-rated.
Telling HMRC yourself can reduce a careless-error penalty, but a nil penalty is not guaranteed.
Next, I can check the rest of your till list for lines on the wrong button.
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 shop in the UK, in [England, Wales, Scotland or Northern Ireland]. Here is my EPOS product list with the VAT rate each line is coded to: [paste]. Check every line against the food VAT rules, flag anything coded wrong, estimate the VAT effect over the last [number] quarters, and tell me which retail scheme fits my sales mix. My rateable value is [£]: check what my 2026/27 rates bill should be.
More for shops and physical retail in the UK
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- Paying for Christmas stock before Christmas pays youWhy a shop's cash can run out in January, straight after its best month, and how a 13-week forecast shows it in time to act.Read the lesson
- Selling alcohol, tobacco and vapes without putting the licence at riskThe ages, the defence that protects you, the fireworks sale windows, keeping the licence live, what to do after a failed test purchase, and the tobacco and vape changes landing between October 2026 and March 2027.Read the lesson
- Signing or renewing a shop lease without walking into a trapSecurity of tenure, notice deadlines, break clauses, service charges and personal guarantees: the lease terms that decide whether a shop can stay and what it really pays.Read the lesson
- Sundays, under-18s on the till and customers who cross the lineThe shop-floor staff rules: Sunday opt-outs, young workers selling alcohol, harassment by customers, and what staff should do about shoplifters.Read the lesson
- A customer is back with something faulty and wants a refundWhat the law says you owe on day 25, day 70 and in month 5, why a 'no refunds' sign can get you into trouble, and what a gift voucher must say about expiry.Read the lesson
Open the interactive lesson · Every shops and physical retail lesson · What Greymill knows about the trade
Sources
The primary sources behind this lesson, checked Oct 2026.
- Sch 8 Group 1, general items, excepted items 1 to 7, overrides (VAT on what A shop sells)
- VFOOD manual, cakes and biscuits pages (VAT on what A shop sells)
- Procter and Gamble UK v HMRC [2009] EWCA Civ 407 (VAT on what A shop sells)
- Notice 701/14 sections 2 to 4 (VAT on what A shop sells)
- Sch 4 para 5 (gifts; £50 cost limit) (VAT on what A shop sells)
- Notice 700/7 (linked supplies, multibuys) (VAT on what A shop sells)
- Notice 727 section 3 (choosing a scheme); 727/4 and 727/5 eligibility (VAT retail schemes, vouchers and errors)
- eligibility (VAT retail schemes, vouchers and errors)
- Notice 733 section 4 (rates table), limited cost business (VAT retail schemes, vouchers and errors)
- Sch 10A paras 2, 3 (VAT retail schemes, vouchers and errors)
- Notice 700/45 section 4 (VAT retail schemes, vouchers and errors)
- VAT Notice 700/45 section 4 (VAT retail schemes, vouchers and errors)
- 2026/27 multipliers (Business rates)
- Business Rates Information Letter 5/2025 paras 2, 3 and 6; Annex paras 6 to 8 (Business rates)
- revaluation guidance (Business rates)
- eligibility (Business rates)
- empty property relief; 13-week rule from 1 April 2024 (Business rates)
- 2023 and later lists (Business rates)
- VATA 1994 s.2 (Worked examples in pounds)
- MPC decision (Rates and cost backdrop)
- bulletin (Rates and cost backdrop)
- HMRC interest rates table (Rates and cost backdrop)
- announcement (Rates and cost backdrop)
- Environmental Protection (Single-use Vapes) (England) Regulations 2024 and the Scottish, Welsh and NI equivalents (Pitfalls that embarrass the product)
- reg 6A (Pitfalls that embarrass the product)
- s.100, s.108(6) (Pitfalls that embarrass the product)
- BSA 2022 s.156 amending RRFSO 2005 art 9 (Pitfalls that embarrass the product)