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The takeaway tax: Why cafes and coffee shops are at risk of VAT mistakes

The takeaway tax: Why cafes and coffee shops are at risk of VAT mistakes, VAT rules on take away food

If you’re a frequenter of coffee shops (and let’s face it, who isn’t these days?), you’ll be well used to the barrage of questions that follows almost every order.

“Black or white coffee? Would you like the sandwich heated? Eat in or take away?”

From a customer perspective, that last question can sometimes seem the most irrelevant, especially if the barista packs your sandwich into a paper bag regardless of your answer.

However, it’s actually an essential query in order for stores to stay on the right side of the taxman.


VAT rules on takeaway food

When VAT was first introduced, certain goods and services were considered so essential they were ‘zero-rated’ - subjected to no addition of VAT.

Among these items are cold sandwiches  - but they’re actually only zero-rated when they’re consumed off the premises.

Sandwiches consumed on the premises are subject to VAT at the standard rate - hence the higher price you usually pay for dining in.

Furthermore, if you ask for the sandwich to be heated, it instantly becomes standard rated…even if you take it away and eat it at your desk.

Paying the price for confusion

While the rules are relatively simple, it’s very easy for coffee shop staff to make a mistake amid the pressure of a hectic lunch hour service - especially given the increasingly complicated nature of coffee menus.

But whether they’re accidentally keying in the wrong code or forgetting to ask the ‘eat in’ question altogether, it does leave business owners at the very real risk of overstating their zero-rated sales.

We say overstating rather than understating, because more often than not, if staff don’t ask where the goods are to be consumed, they’re charging customers the takeaway (zero-rated) price.

Coffee shops have become such big business in the UK, that it’s surely only a matter of time before HMRC pay closer attention to the matter - eager to claim back the VAT they might be missing out on.

Why mistakes are made…and what can business owners do

There are a number of factors which can contribute to VAT mistakes being made in a coffee shop, bakery or sandwich bar. Staff may simply be too busy to get it right, or may not have received sufficient training on the topic.

Indeed, staff turnover is notoriously high in the catering sector, and this often leads to rushed, basic training that’s unlikely to focus heavily on tax issues.

As a business owner, it’s your duty to make the VAT rules clear to all new starters, and to stress the importance of asking the necessary questions as part of the sales routine.

It’s also prudent to keep a close eye on your VAT sales figures in order to identify any changing trends. A sudden drop in ‘dine-ins’ might just signal the start of picnic season - but equally, it could mean a member of staff is mistakenly chalking everything up as a takeaway…

In the event of an investigation, HMRC would almost certainly recognise the VAT mistakes as genuine errors. There’s no deliberate intention to mislead, not least as there’s no benefit to the business owner to charge diners the lower takeaway price.

However, it could still leave you with a hefty, revised VAT bill to deal with.

Other quirks of the coffee shop trade

In the wording of UK tax law (and echoed by everyone, everywhere!), biscuits and cakes are deemed necessities. So, just like cold sandwiches, they too are zero rated.

However, chocolate-covered biscuits fall into the ‘luxury’ category, and are subject to the full rate of VAT.

Meanwhile, for reasons hard to fathom, chocolate-covered cake continues to be zero rated. It’s a quirky case that was highlighted by the manufacturers of Jaffa Cakes, who went to court to prove their product was indeed a cake and not a biscuit - succeeding in getting a zero-rated classification that stands to this day.

Other odd rules exist too. A gingerbread man with two chocolate eyes? Zero rated. A gingerbread man with any other chocolate embellishment? Not zero rated.

It all goes to show the tricky tax minefield that lies ahead of coffee shop owners and bakeries every single day. Who knew gingerbread people could land you in trouble with the taxman…

For more information on VAT rules just give the Inform team a call on 0121 667 3882  You can also email us on


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