VAT is one of the most misunderstood areas of tax for hospitality businesses. Whether you run a small coffee shop, a busy restaurant or a takeaway, you must know how VAT on food and drink works for staying compliant and protecting your profits.
As of January 2026, the core rules remain steady post-COVID era adjustments, with the standard VAT rate holding at 20% for applicable items in hospitality. This guide provides a simple explanation of all these questions using the latest HMRC guidance and current VAT rates.
What is VAT & Why Does it Matter for Food Businesses?
Value Added Tax (VAT) is charged at a rate of 20% on most goods and services in the UK, as part of catering services. Some food items are tagged as zero-rated when they are sold for home consumption. Therefore, stricter VAT rules often apply to hospitality businesses because food and drinks are prepared for immediate consumption. Important to note that there is no reduced VAT rate for hospitality at present.
VAT Rates on Food & Drinks
Here is the summary of VAT rates that are typically applied to food and drinks sold by cafés.
| Type of Sale | VAT Rate | Description |
|---|---|---|
| Food eaten on the premises | 20% | All dine-in food and drink is treated as a catering services |
| Hot takeaway food | 20% | Food sold hot, kept warm or advertised as hot |
| Cold takeaway food (basic items) | 0% | Often zero-rated when sold for home consumption |
| Cold takeaway food (exceptions) | 20% | Confectionery, crisps, ice cream, soft drinks |
| Hot drinks (e.g. coffee, tea) | 20% | VAT applies whether consumed in or taken away |
| Alcoholic drinks | 20% | Always standard-rated |
VAT on Restaurant Food in the UK
VAT on restaurant food in the UK is straightforward. Any food or drink consumed on your premises falls under the 20% VAT rate. This includes hot meals, cold dishes, desserts, coffee, soft drinks and alcohol. Even food that is zero-rated in the supermarket can become VAT-able once it is sold as part of a dining experience. HMRC consider seating arrangements as part of the catering service, either indoors or outdoors. If customers eat or drink in an area provided by your business, VAT must be charged.
How Seating Affects VAT
Seating plays a critical role in VAT treatment. Even food that might normally be zero-rated becomes subject to 20% VAT if it is eaten in your seating area. It includes indoor tables, outdoor benches or any space that is provided specifically for customers to consume food or drink. For takeaway businesses, adding space for seating can significantly change VAT rules as well.
VAT on Takeaway Food
Takeaway food is the area where VAT rules become more complex. The main distinction point is whether the food is cold or hot at the point of sale.
Hot Takeaway Food
Hot takeaway food is always rated as 20% VAT. This rate applies when the food is hot at sale time, kept warm, sold in heat-retaining packaging or marketed as hot. For example, burgers, fries, hot sandwiches, pizzas, soups and hot bakery items are included in this category.
Cold Takeaway Food
Mostly cold takeaway food is tagged as zero-rated, which means no VAT is charged. For example, cold sandwiches, salad and some bakery items are included in this category. However, HMRC has a list of exceptions. Like crisps, chocolate, sweets, ice cream and many sweet snacks are charged at the standard 20% rate, even when sold cold.
VAT on Coffee & Other Drinks
A common question that always pops up in the minds of cafés owners is “Is there VAT on coffee?” The answer is absolutely yes. Hot coffee is always subject to 20% VAT, regardless of whether it is consumed in the café or takeaway. The same rule is implemented for tea, hot chocolate and similar drinks. Most cold drinks are also subject to the standard 20% rate, including bottled water, fizzy drinks, smoothies, milkshakes and alcohol. On the other hand, coffee beans or ground coffee sold for home use are usually zero-rated because they are not considered part of a catering service.
Do Café Businesses Have to Register for VAT in the UK?
Café, restaurant and takeaway businesses must register for VAT if their VAT taxable turnover exceeds £90,000 in any 12-month period, which is the current VAT registration threshold for 2025/26.
| VAT Registration Status | Requirement |
| Turnover above £90,000 | Mandatory VAT registration |
| Turnover below £90,000 | Optional or voluntary registration |
| Drop below £88,000 | You can deregister |
Once you register for VAT, you must charge VAT on taxable sales, submit VAT returns, keep proper records and pay VAT due to HMRC. Voluntary registration can be beneficial if you want to reclaim VAT on expenses, but it also means charging VAT to customers.
Common VAT Mistakes in Cafés, Restaurants & Takeaways
Mostly hospitality businesses assume incorrectly that all takeaway food is VAT-free or forget that seating changes the VAT treatment. Others misclassify hot food, apply zero-rating to drinks or fail to register for VAT once they exceed the threshold. These mistakes can lead to penalties, interest and unexpected backdated VAT bills from HMRC.
Tips to Stay Ahead
- Set up your POS system to auto-split rates on mixed orders.
- Document everything and maintain proper records for HMRC audits.
- Dive into VAT Notice 709/1 for official guidance.
- Use VAT-savvy software or consult an accountant, especially near the threshold.
How Reflex Accounting Can Support Your Hospitality Business
VAT for cafés, restaurants and takeaways can quickly become complex, especially when rules change depending on how food and drink are sold or consumed. At Reflex Accounting, we help hospitality businesses apply VAT correctly, monitor turnover to ensure timely registration and submit accurate VAT returns fully compliant with HMRC requirements. Whether you need support with menu VAT classification, advice on voluntary VAT registration or ongoing VAT planning to protect your margins, our team provides clear and practical guidance. So, you can focus on delivering great food and service while we take care of the numbers with confidence.
FAQs: VAT for Cafés, Restaurants & Takeaways
Is there VAT on food?
Yes, Eat-in food is always 20% VAT. Cold takeaway food is usually zero-rated, but hot takeaway food and certain snacks are 20% VAT.
What is the VAT registration threshold for cafés in 2025/26?
You must register for VAT if your taxable turnover exceeds £90,000 in 12 months.
Do I charge VAT on coffee/hot drinks?
Yes, hot drinks like coffee, tea and hot chocolate are always 20% VAT, whether consumed in or taken away.
What’s the VAT rate on sandwiches?
Cold takeaway sandwiches are usually zero-rated, but hot sandwiches or those eaten on the premises are 20% VAT.
What does HMRC consider ‘hot food’?
Food is considered as hot if it is hot at sale time, kept warm, sold in heat-retaining packaging or advertised as hot. Hot food is 20% VAT.
What’s the difference between eat-in and takeaway VAT?
Eat-in food is always 20% VAT. Takeaway may be zero-rated if cold, but hot takeaway food and most drinks are standard-rated.
Do I need an accountant for café VAT?
An accountant ensures VAT is applied correctly, thresholds are monitored, and returns are accurate. So, HMRC risks can be reduced and save you time.
