VAT on cafe food and drink, explained simply

If your cafe is VAT registered, the same sandwich can carry 20% VAT or none at all, depending on whether it's eaten in or taken away. Getting it wrong means either overpaying HMRC or owing it money later. Here are the basics for a typical UK cafe.

This is a plain-English summary, not tax advice. The detail is in HMRC's VAT Notice 709/1: catering and takeaway food, and an accountant can check the items you're unsure about.

The three questions

• Is it eaten in? Food and drink eaten on your premises, including tables outside that you provide, is catering and carries 20% VAT.
• Is it hot? Hot takeaway food and hot drinks carry 20% VAT, whether eaten in or taken away. A toastie heated to order counts as hot.
• Is it on the standard-rated list? Some cold takeaway items always carry 20%: soft drinks, bottled water, juice, crisps, sweets and chocolate, chocolate-covered biscuits and ice cream.

If the answer to all three is no, it's usually zero-rated: most cold takeaway food, like sandwiches, salads, cakes and plain biscuits.

Everyday examples

• Flat white, eat-in or takeaway: 20%.
• Cheese sandwich, taken away cold: 0%. Eaten at a table: 20%.
• Ham and cheese toastie, toasted to order: 20% either way.
• Slice of carrot cake, taken away: 0%. With a fork at a table: 20%.
• Can of cola or a bottle of water: 20% either way.
• Croissant, taken away cold: 0%. Warmed up for the customer: 20%.

Set your till up once

Most tills, Square included, can charge a different VAT rate for eat-in and takeaway. Set it up once per item, and ask staff to pick the right option at the counter: an item rung up as takeaway and then eaten in should have carried VAT.

What it means for your GP

GP is worked out on the price without VAT. A £3.50 sandwich taken away cold gives you the whole £3.50. Eaten in, a sixth of it (58p) goes to HMRC and you keep £2.92. If lots of customers eat in, your real GP on food is lower than a takeaway price suggests, so cost your menu at the eat-in price.

Do you need to register?

You must register once your VAT-taxable sales go over the registration threshold in any rolling 12 months. HMRC lists the current figure on GOV.UK. Below it, you don't charge VAT and your GP is worked out on the full price.

The free GP calculator lets you choose 20% or no VAT for each item. Quokka uses each item's VAT rate from your till, so your profit is always worked out on what you actually keep.