Delivery & Take-away – how to adapt for VAT

The food and hospitality sector (restaurants, bars, cafes, canteens and similar establishments) have been hit particularly hard by the Covid-19 lockdown.  Businesses are having to adapt quickly to survive, for example, by offering take away or delivery.

In doing so, you can take advantage of the VAT rules which allow VAT to be zero rated on certain qualifying supplies.  However, it is a minefield so care is required.

The basics

The VAT law in respect of food is not a picture of clarity.  The general position is that the supply of food is relieved of VAT by ‘zero-rating’ i.e. a 0% rate of VAT is applicable. However, there are a number of exceptions to the zero-rating for food, for which the standard rate of VAT will apply at 20%.

There has been much debate on what qualifies for 0% VAT and what should have VAT charged at 20%.

For example, food items that are, as a rule of thumb, considered to be ‘luxury goods’ i.e. non-essential food items such as confectionary, crisps and fizzy drinks etc are charged at 20% VAT.

But there are exceptions such as cakes and certain biscuits which are zero-rated.

You then need to consider whether the food is to ‘eat in’ and therefore VAT is charged at 20% or ‘take away’ which can often be zero-rated.

But there is an exception to the exception!  If the take-away food is hot then often this will need to be standard rated with VAT charged at 20%.  But items such as sushi and wraps are not classed as ‘hot’ and can therefore be zero-rated.

Clear as mud!

End of eating in for now?

Understandably, eat in sales have ceased for restaurants, pubs and cafés that have had to remain closed during lockdown.  If you have adapted to offer take away or delivery services then there is an opportunity the reduce your VAT charge on certain sales.

The rules are complex and we recommend looking at your menu on an item by item basis so that take-away supplies can be correctly coded into the till to avoid any costly mistakes.

The HMRC VAT notice 709/1 is a good place to start – https://www.gov.uk/guidance/catering-takeaway-food-and-vat-notice-7091

Remember too that we offer tax fee protection policy, which might give you peace of mind that our accountancy fees would be covered in the event of a VAT inspection down the line.

If you need support or further information regarding VAT and food, please contact Esther Guy on  01737 652 852.