UK Vat zero Rating for Food

The Value Added Tax (VAT) is the UK’s consumption and sales tax. Normally, the tax rate is 17.5%, rising to 20% as of 2011. However, in many cases food can be zero-rated, meaning no tax is charged.

Revenue & Customs has several systems under which VAT can be reduced or eliminated on sales of particular goods and services. Margin schemes exist for second-hand goods and tour agencies, and there are exemptions for health care services. There are also zero-ratings for categories like books and food. Technically, a zero-rating does not mean that an item is not taxable. Instead, it means that the government has set the VAT rate for that product to zero percent. Of course, from the perspective of the consumer, the result is the same.

The government explains the VAT zero rating for food in Notice 701/14. As a general rule, all unprocessed food, such as uncooked fish and meats, fruits, vegetables, cereals and grains, nuts, and herbs are zero-rated. Foods that are further processed (e.g. catered), or food-like products that are not designed to be eaten, like ornamental vegetables, must be assessed at the full VAT rate. Baked goods, like bread and biscuits, are zero-rated, unless the biscuits are chocolate-covered.

Note, therefore, that the VAT zero rating for food applies specifically to the sale of food, and not to food services. For this reason, catering is always standard-rated for VAT purposes, including the food which is catered. In addition, there are a number of exceptional foods which are charged at standard rate. According to Revenue & Customs, these include ice cream (but not frozen yoghurt), confectionery (other than biscuits), alcohol, certain other beverages (though not milk, tea, or coffee), and crisps and other snack products. It also does not apply to items that are taken by the mouth but are not generally seen as food, such as medication and dietary supplements. Beverages are always standard-rated if they are heated prior to sale, or are sold with the intention of being consumed on the premises (e.g. in a restaurant).

If you own (or are considering investing in) a business that sells food and food services, you should consider consulting a qualified professional, like an accountant or tax lawyer. They can help you understand your legal obligations with respect to collecting taxes. The Revenue & Customs document on the VAT zero rating for food contains very extensive lists of example foods, which should also be of some help.