Learn about VAT rules for food in 3 minutes!
- TBA
- Sep 18, 2024
- 2 min read
Updated: Feb 25
Here’s a quick read for you today – let’s find out about how VAT is applied to some foods.
1. Essential vs luxury foods
Luxury foods in the UK are usually subject to the standard rate of VAT at 20%. So, what foods are considered luxury items?
Typically, items like champagne and caviar might be regarded as luxury foods, but the main focus is on non-essential items like chips and chocolate, which are also subject to the same 20% rate.
On the other hand, essentials like bread and milk fall under the zero-rate category and are therefore exempt from VAT.
2. Bubble tea and more
Recently, some of our clients have asked whether the bubble tea sold in their bubble tea shops qualify for zero-rating.
If the main ingredient in the bubble tea is milk, with only a small amount of tapioca pearls, it may qualify for zero-rate VAT, but it must meet the following two conditions:
It cannot be consumed on the premises, as dine-in requires an additional 20% VAT
It must be a cold drink, as take-away hot drinks are also subject to 20% VAT
It’s important to note that if the bubble tea shop sells other items like fruit teas or carbonated drinks, those products would not usually qualify for zero-rating.
There are many other similar examples in other stores. For example, when we buy a sandwich at Pret A Manger (very popular in the UK!), the staff might ask if you’re eating in or intend to take the food away. The price is different because of the VAT charged on dine-in food.
Additionally, even if you take the sandwich away, if it needs to be heated, you’ll still be charged 20% VAT.
3. Other foods?
The government also often imposes 20% VAT on high-sugar content to control sugar intake, as a public health policy.
However, for cakes, they consider them not as desserts, but as something that can be filling, so cakes are actually zero-rated!
Chocolate, on the other hand, is still subject to the 20% rate. As you can see, there are lots of complex rules in place, so if you’re selling food, it’s important to make sure you are charging the correct amount of tax!