VAT on restaurant food in the UK: rates, takeaway rules and worked examples

VAT is one of the least intuitive costs in hospitality. The same sandwich can be taxed at 20% or 0% depending on whether it is warm, where it is eaten, and even how you advertise it. Get the rules wrong and you either overpay HMRC or build up a liability that surfaces at your next inspection.

This guide explains, in plain English, how VAT works for a UK restaurant, cafe or takeaway in 2026: which rate applies to what, when you must register, how the flat rate scheme works for catering, and the special cases that catch restaurateurs out, from service charges to retained no-show deposits. Every rule below links to the HMRC or gov.uk source, and every example is worked through in pounds.

One note before we start: this article is general guidance, not personalised tax advice. For decisions with real money attached, confirm with your accountant.

The basics: 20% on everything eaten in

The rule for on-premises dining is refreshingly simple. Under VAT Notice 709/1, all food and drink consumed on the premises where it is supplied is standard-rated at 20%. Hot or cold, starter or dessert, tap water aside, it makes no difference: if the customer eats it at your table, you charge 20% VAT.

That includes drinks. Alcohol is always standard-rated, whether drunk in or taken away, and so are soft drinks and bottled water.

Because UK menu prices are shown VAT-inclusive (more on that below), the VAT is already inside the number the customer sees. At the 20% rate, the VAT portion of a gross price is one sixth of it.

Worked example. A table of four runs up a bill of £180 including VAT. The VAT inside that bill is £180 ÷ 6 = £30. Your net revenue is £150, and the £30 belongs to HMRC (minus whatever input VAT you can reclaim, see below).

That one-sixth reflex is worth internalising: on every VAT-registered restaurant's £10 dish, £1.67 is tax. If you are working out how much margin a dish really makes, always start from the net price, not the number printed on the menu.

If you take bookings, VAT questions also follow the booking itself: deposits, no-show charges and service charges all have their own treatment, covered further down. A booking tool does not change your VAT position, but it does keep the paper trail tidy: with a restaurant booking system with a genuinely free plan, every reservation, confirmation email and cancellation is logged, which makes reconciling deposits and no-show charges at VAT return time far less painful.

Takeaway: the hot vs cold distinction

Takeaway is where VAT gets famously weird. The short version, again from VAT Notice 709/1:

• Hot takeaway food and hot drinks: standard-rated at 20%.
• Cold takeaway food: zero-rated (0%), with exceptions for items that are always standard-rated, such as crisps, confectionery, soft drinks and bottled water.

When does HMRC consider takeaway food "hot"?

Food counts as hot takeaway if it is hot at the point of sale (above the ambient air temperature) and meets at least one of five tests set out in section 4.2 of Notice 709/1:

1. It has been heated for the purposes of enabling it to be consumed hot
2. It has been heated to order
3. It has been kept hot after being heated
4. It is provided in heat-retentive packaging or packaging specifically designed for hot food
5. It is advertised or marketed in a way that indicates it is supplied hot

This is the framework that emerged from the 2012 "pasty tax" episode. The practical consequences:

Worked example. A customer buys a meal deal to take away: a cold chicken sandwich (£4.50), a packet of crisps (£1.20) and a bottled water (£1.30). The sandwich is zero-rated, so you keep the full £4.50. The crisps and water are standard-rated, so £1.20 ÷ 6 = £0.20 and £1.30 ÷ 6 = £0.22 go to HMRC. Same bag, three items, two VAT rates.

If you sell both eat-in and takeaway, your till must record which is which, because the same cold sandwich is 20% eaten at your tables and 0% out of the door. That includes tables and seating you provide outside: on-premises consumption is judged by where the customer eats, not by which door they use. If you also sell through delivery platforms, the same hot/cold logic applies to delivered food, with the platforms' commissions stacking on top of the VAT.

When must a restaurant register for VAT?

You must register for VAT when your taxable turnover for the last 12 months goes over £90,000, or when you expect it to go over £90,000 in the next 30 days (gov.uk, VAT registration).

Two details restaurateurs often miss:

• It is a rolling 12-month window, not your accounting year. Check the trailing 12 months every month; a strong Christmas can tip you over in January.
• Taxable turnover includes zero-rated sales. A takeaway doing mostly cold, zero-rated food still counts that revenue towards the £90,000. Zero-rated is a VAT rate; it is not "outside VAT".

Once over the threshold you must register within 30 days of the end of the month in which you exceeded it. You can also register voluntarily below the threshold, which is worth considering if your input VAT (fit-out, equipment, rent with VAT) is high, but it means charging 20% on eat-in sales that your unregistered competitors do not.

Crossing the threshold is a genuine cliff edge for a small cafe: overnight, roughly a sixth of your eat-in revenue becomes tax, and you either raise menu prices or absorb it against already thin hospitality margins. Plan for the cliff edge before you reach it, not in the month you cross it.

The flat rate scheme for catering

The VAT Flat Rate Scheme is a simplification: instead of tracking VAT on every sale and purchase, you pay HMRC a fixed percentage of your VAT-inclusive turnover, and in exchange you generally do not reclaim input VAT (except on certain capital assets).

The key numbers, from gov.uk's flat rate tables:

• You can join if your expected VAT taxable turnover is £150,000 or less (excluding VAT)
• The rate for catering services, including restaurants and takeaways, is 12.5% (rate in force since 1 April 2022)
• Pubs pay 6.5%
• You get a 1% discount in your first year as a VAT-registered business
• "Limited cost businesses" (goods under 2% of turnover or under £1,000 a year) pay 16.5% instead; a restaurant buying food stock is very unlikely to fall into this category

Worked example. A small restaurant turns over £132,000 including VAT in a year. On the flat rate scheme it pays £132,000 × 12.5% = £16,500 to HMRC, with almost no input VAT to reclaim. Under normal VAT accounting it would pay one sixth of its standard-rated takings minus all its input VAT on food, rent, energy and equipment. Which is cheaper depends entirely on your cost structure: food-heavy, investment-heavy businesses often do better on normal accounting, while simple operations value the reduced admin. Run both numbers before choosing.

Service charges and tips: not the same thing for VAT

HMRC draws a sharp line in VAT Notice 709/1, section 2.3:

• A compulsory or automatic service charge (for example "a discretionary 12.5% will be added to your bill" applied by default) is standard-rated: it follows the VAT treatment of the meal.
• A genuinely voluntary tip, freely given by the customer over and above the total charge, is outside the scope of VAT: no VAT is due on it.

Worked example. A £200 dinner bill carries a compulsory 12.5% service charge of £25. VAT is due on the full £225: £225 ÷ 6 = £37.50. If instead the customer left £25 voluntarily, VAT would only be due on the £200 (£33.33), and the tip would carry no VAT at all.

Note that the VAT treatment is separate from the employment-law question of who keeps the money: since October 2024, allocation of tips and service charges to staff is regulated too. We cover that side in our guide to tips and service charges in UK restaurants.

Deposits and no-show charges: VAT is due even if the guest never turns up

This one surprises almost everyone. Since 1 March 2019, HMRC's policy (Revenue and Customs Brief 13 (2018)) is that VAT is due on all retained payments for unused services. Before that date, a deposit kept after a no-show could often be treated as outside the scope of VAT (as compensation). Following European court rulings, that treatment ended: an advance payment for a taxable supply creates a tax point when it is paid, and the VAT stays due even if the customer never shows up.

The general deposit rule is in the VAT guide (Notice 700), section 8.13: "VAT is due on all charges, deposits and fees which are full or part payments for a supply of goods or services", and "if you retain a (full or part) payment for goods or services which your customer fails to take up, then VAT is due on the amount paid."

Worked example. You take a £10 per head deposit for a party of six (£60). The table no-shows and you keep the deposit under your cancellation policy. The £60 is treated as VAT-inclusive consideration: £60 ÷ 6 = £10 goes to HMRC, and you keep £50 net.

Deposits remain one of the most effective no-show deterrents available to UK restaurants; the VAT cost is real but small compared with an empty table on a Saturday night. Our detailed guide to deposits and card holds for UK restaurant bookings covers how to set them up fairly and legally. On the tooling side, this is exactly what ViteUneTable's Standard + Anti No-Show pack (€49 excl. VAT/month) automates: a card hold taken at booking time, charged only if the table does not honour the reservation, with every transaction logged for your VAT records. The free plan already sends automatic booking confirmations, at 0% commission, forever.

Menu prices must include VAT

If you sell to the public, the price you display is the price the customer pays. Under UK consumer law on price transparency, the total price presented to consumers must include any unavoidable, mandatory element, and the CMA's price transparency guidance (CMA209) is explicit that this includes "tax, like VAT" and any mandatory fee.

In practice, for a VAT-registered restaurant:

• Menu and website prices are VAT-inclusive. You cannot advertise "£10 + VAT" to diners.
• A compulsory service charge must be clearly disclosed up front, not discovered on the bill.
• Business-to-business pricing (say, corporate catering quotes) can legitimately be quoted ex-VAT, because the transparency rules protect consumers.

This is also why the "one sixth" habit matters: your menu carries gross prices, your P&L should think in net ones.

Reclaiming input VAT: what you can and cannot claim back

Being VAT-registered cuts both ways: you charge VAT on sales, and you reclaim the VAT on business purchases (input tax) through the same return. For a restaurant, that typically means VAT on:

• Standard-rated stock (alcohol, soft drinks, confectionery; note that most raw food ingredients are zero-rated to start with, so there is often less input VAT on food than owners expect)
• Rent (where the landlord has opted to tax), energy, equipment, fit-out and repairs
• Services: accountancy, marketing, card processing where VATable, software subscriptions

Two blocks worth knowing, from VAT Notice 700/65 on business entertainment:

• Business entertainment VAT is not recoverable. Wining and dining suppliers, journalists or business contacts is blocked from input tax recovery.
• Staff entertainment is recoverable: VAT on a genuine staff party or team event is input tax and not blocked, though the portion relating to non-employee guests is, and events solely for directors or partners do not qualify.

Keep VAT invoices for everything. On the flat rate scheme, remember, input VAT recovery is generally off the table, which is precisely the trade-off to price in before joining.

Quick reference table

Frequently asked questions

What is the VAT rate on restaurant food in the UK?

Food and drink consumed on the premises is standard-rated at 20%, whether hot or cold. Hot takeaway food and drinks are also 20%. Most cold takeaway food is zero-rated, except items that are always standard-rated such as crisps, confectionery, soft drinks and bottled water (VAT Notice 709/1).

Do small restaurants have to charge VAT?

Only once registered. Registration becomes compulsory when taxable turnover exceeds £90,000 in any rolling 12-month period, or when you expect to exceed it within 30 days. Below that, you can trade without charging VAT, or register voluntarily to reclaim input VAT.

Is there VAT on a service charge?

Yes, if it is compulsory or added automatically: it takes the same 20% rate as the meal. A genuinely voluntary tip that the customer chooses to leave carries no VAT (VAT Notice 709/1, section 2.3).

Do I owe VAT on a no-show charge or a kept deposit?

Yes. Since 1 March 2019, HMRC treats retained payments for unused services as consideration for the supply, so VAT remains due on a deposit you keep after a no-show (Revenue and Customs Brief 13 (2018)). Treat the amount kept as VAT-inclusive: one sixth of it is tax at the 20% rate.

Should my menu prices include VAT?

Yes. Prices presented to consumers must be the total price including VAT and any mandatory charges, under the CMA's price transparency rules. Quoting ex-VAT prices is only acceptable in business-to-business contexts.

Is the flat rate scheme worth it for a restaurant?

Sometimes. Catering businesses pay 12.5% of VAT-inclusive turnover (pubs 6.5%) and skip most VAT bookkeeping, but give up input VAT recovery. It tends to favour simple, low-cost operations; food-heavy or investment-heavy restaurants often pay less under normal VAT accounting. Model both before deciding, and note you can only join with expected turnover of £150,000 or less excluding VAT.