Maximising VAT Opportunities in Catering

In a challenging market, catering teams are under pressure to deliver great service while protecting margins. VAT is part of that equation, and with complex rules and ever-changing guidance, it’s easy to miss opportunities.

We caught up with Glen Small, a Chartered Tax Adviser at Johnston Carmichael with over 10 years of experience specialising in VAT, to share his insights on what catering teams need to be aware of and how to reduce VAT costs.

Standard VAT Position

VAT at the standard rate (20%) typically applies to catering services, including on-site catering – restaurants, cafés, pubs, events, functions, and staff canteens.

Hot Takeaway Food

Hot takeaway items are subject to 20% VAT if:

Heated to be consumed hot
Kept hot after cooking
Served in heat-retaining packaging
Marketed as hot food

Cold Takeaway Food

Cold takeaway items are generally zero-rated unless excepted, such as: confectionery, crisps (potato-based), ice cream, chocolate-topped biscuits, soft drinks

Zero-rated examples include: sandwiches, milkshakes, non-potato crisps, traditional flapjacks, cakes, other biscuits, and cold pasta pots. Correctly classifying borderline items prevents errors and uncovers missed savings.

When is Food ‘Taken Away’?

Food is considered ‘taken away’ when the customer intends to consume it off-premises.

Key indicators:

Packaged in takeaway containers
No seating used or available
Separate pricing for takeaway and eat-in

Key VAT Opportunities for Caterers

Accurate Product Classification

Review each menu item, particularly borderline products, to ensure correct VAT treatment of cold food that may be zero-rated.

Mixed Supplies

Apportion supplies to include zero-rated elements where meals contain both zero (like bread, fruit, cold takeaway sandwiches) and standard rate elements (hot food, fizzy drinks, confectionery), using preferable methods like cost or selling price basis.

Cost basis: determine what part of the total cost relates to the zero-rated items and what part relates to the standard-rated items, then apportion VAT accordingly.
Selling price basis: determine what part of the final selling price relates to the zero-rated items and what part relates to the standard-rated items.

Meal Deal Structuring

Separate zero-rated and standard rate components clearly. Itemisation on receipts can optimise VAT treatment.

Takeaway vs Eat-in

Use clear signage, packaging, and policies to differentiate eat-in (standard-rated) from takeaway.

Staff Meals

Recover VAT on staff meals where properly accounted for, including free or subsidised meals.

Agency Catering Concessions

Staff costs may sometimes be charged to principal suppliers as VAT-free disbursements if certain conditions are met.

Prospective and Historical Opportunities

Prospective: Charge VAT only where required to protect margins.
Historical: Review the last four years for potential VAT repayment claims on sales wrongly treated as standard rated. Glen shares “Some clients’ claims have reached five and six figures.”

Example
You sell a meal deal for £5 (a sandwich, crisps, and a soft drink).

Sandwich = zero-rated (say £2.50 of the deal)
Potato crisps = standard-rated (say £1.00 of the deal)
Soft drink = standard-rated (say £1.50 of the deal)

Using a selling price basis, you would split the £5 between the items and charge VAT only on the standard-rated parts (£2.50 in this case).

Using a cost basis may result in a favourable apportionment towards zero-rating and should, therefore, be considered by analysing the cost of acquiring the items in question in a similar way.

We get it, and we can help.

We understand the challenges our clients face and are here to help you. If you need procurement support to help mitigate VAT costs, get in touch with our team at Hello_UK@avendra.com.