VAT in a UK restaurant looks simple until the same sandwich is taxed two ways in one afternoon. Here is what decides the rate, and what your till and books need to do about it.
20%, unless it's cold and going out the door
- Standard rate, 20%: food and drink eaten on the premises, and hot takeaway food.
- Zero rate: most cold takeaway food.
- Still 20% even as cold takeaway: alcohol, confectionery, crisps, soft drinks and bottled water.
So the rate depends on the item and on how it leaves. Your till needs to know both, and your X and Z readings should show zero-rated sales on their own line.
Menu prices include VAT
Prices shown to guests must include VAT (the Price Marking Order). The bill then shows the VAT inside the total rather than adding it on top.
Service charge: optional, and all of it to staff
A discretionary service charge (often 12.5% in London), one the guest can decline, is outside the scope of VAT. A compulsory one is standard-rated. Either way, since 1 October 2024 the Employment (Allocation of Tips) Act requires every tip and service charge to be passed to staff in full, so book it as money owed to them, never as income.
Pennies are exact
Nothing on a sterling bill is rounded away. The VAT on each bill should add up exactly to what the return reports.
The nine-box VAT return
VAT returns are usually quarterly and go through Making Tax Digital software. Boxes 1 (VAT on sales) and 4 (VAT reclaimed on purchases), 6 (sales excluding VAT) and 7 (purchases excluding VAT) all come from records you already keep, if every bill and supplier invoice is in one system.
When you must register
Registration is compulsory once VAT-taxable turnover passes £90,000 in any 12 months.
In Feazio, UK restaurants get VAT-inclusive prices, the right rate per item, zero-rated takeaway shown apart, a discretionary service charge held for staff, and all nine boxes of the VAT return worked out from bills, purchases and expenses, ready for MTD bridging software. Try the free VAT calculator.
This is general information, not tax advice. Check your own position with your accountant or HMRC.