How VAT on Food is charged in the UK & Upcoming Changes in Future
VAT or Value Added Tax is a form of indirect consumption tax applicable to a given product or service on which value gets added at each stage of the supply chain. More than 160 countries around the globe use the Value Added Taxation system. The system of Value Added Tax is also getting levied in the UK. It applies to the products and services fit for human consumption. VAT applies to different goods and services, including food and its ancillary services. The UK government has established a few rules that govern and determine VAT on food in the UK.
If you are an eatery/restaurant owner or have clients in the food business, understanding the applicability of VAT is essential. Initor Global is here to assist you with the same.
Initor Global UK guides you on how the UK government has established a few rules that govern and determine aspects of VAT on food and what the coming times hold for you regarding VAT applicability.
A Brief on the Value Added Tax System
What makes VAT special is that despite being unbiased to wealth, it raises government revenue. Unlike income taxes, VAT does not punish the wealthy. It also applies to every purchase equally. Many critics believe that it is a regressive tax that puts bureaucratic pressure on businesses and economical strain on taxpayers with low salaries as it is based on consumer consumption rather than income.
How does the VAT system for Food Work in the UK?
VAT on food is not constant, which means it changes based on the type of food item. Also, the food serving style and the medium of its offering affect the amount of VAT. Many people serve their role in the food industry by being related to various parts of the supply chain. It is as important for a supplier to know about the VAT as it is for a wholesaler. A customer must also remain well aware of the VAT regulations along with the retailers. Getting acquainted with the taxes that apply to something as basic as food is necessary for all.
Is There a Legal Obligation to Register for VAT?
In the UK, no businesses are entitled to register for VAT until their annual taxable turnover exceeds the fixed VAT threshold. However, it is completely possible for a firm to voluntarily register itself even if its annual taxable income is less than the specified threshold.
A business registered for VAT can set off the VAT it paid to the suppliers, with the VAT is charged to its customers. HMRC is the authority that collects the net amount left from the registered businesses. Also, companies that are not yet registered for VAT are not obliged to claim input VAT or charge output tax.
What if a Business Registers Voluntarily?
As mentioned before, any business can choose to register for VAT before touching the VAT threshold voluntarily. Unlike a business entity that is not registered for VAT, the one registered is eligible to claim input tax on purchases. The firm also becomes liable to derive the output tax. It is derived from the customers and submitted to HMRC.
Therefore, regardless of whether a business registers for VAT voluntarily or it needed to do so, the VAT obligations remain the same.
Types of Food Items in The Food Industry defined for VAT:
- Takeaway food
- Alcoholic and non-alcoholic beverages
- Drinks that are not beverages
- Bakery products
- Frozen products
- General savoury snacks
- Animal feed
- Raw meat and fish
- Vegetables and fruits
- Cereals, nuts, and pulses
- Culinary herbs
- Home Cooking and Baking food
Food Items Liable to VAT
Food that the consumers get served at restaurants, pubs, cafés or similar places assigned for dining is liable to the value-added tax returns.
Takeaway food, just like dine-in food, is liable to VAT. Any kind of food that a restaurant serves is applied to a standard rate of VAT. One more condition is that the food needs to hot. Dine-in food is served hot, and takeaway food needs to be hot. For the standard rate to apply, the takeaway food needs to be served and packaged so that it is kept hot the way.
Non-alcoholic and alcoholic beverages:
A standard rate is applied to all alcoholic and non-alcoholic drinks and beverages. Regardless of whether the alcoholic drink is consumed on-premises or off-premises, VAT is applied.
Some bakery products are VAT liable, while others are zero-rated. Bakery items like hot meals in a bun or Pita, cakes provided through catering, and other minor bakery supplies that come under confectionery are liable to the value-added tax.
All frozen items that are supposed to be consumed frozen are liable to standard rates. These include ice lollies, ice creams, frozen yoghurts, sorbets, ice cream cakes, ice cream wafer cones, and powders for making frozen food items – All are liable to value-added taxes.
Chocolates, bars containing nuts, toffee, fruit, or any other similar inherently sweet product such as cereal bars and specific fruits are some of the confectionary items that are liable to the standard VAT rate.
General savoury snacks:
There are three main categories into which general savoury snacks are divided. These include snacks made through swelling cereals, potato, or any similar product and roasted and salted nuts. A standard rate is charged to cereal and potato snacks only when it is packaged and sealed whereas, on the other hand, standard rates apply to the roasted nuts, irrespective of whether it is sold packed or loose.
Animal feeding products:
Only packaged pet food applies to the standard VAT rate. Loose pet food is not liable to it.
VAT is applied to food, beverages, and other drinks supplied through a catering contract. More than the standard rate is only charged to cereal and potato snacks when finally packaged and sealed. While on the other hand, the standard rate applies to roasted nuts, whether sold packed or loose. One can find details and specifics around VAT for catering in section one of the HMRC VAT notice 709/1.
What does the Future Hold for VAT levy on Food Businesses in the UK?
With VAT rate cuts introduced in July in the previous year, 2020 due to the Coronavirus pandemic, many difficulties were faced by businesses in the food segment. The reduced VAT rates applied to non-alcoholic drinks served by cafés, restaurants, and pubs prominently for eating and food, including takeaways.
Over the last few months, these lowered VAT rates have enabled many entities to slash the prices of their offerings. The government expects that the tenure of six months relief in VAT rates for most food businesses will allow them to bounce back from the setbacks faced by the sector, with the hope of VAT reductions can boost their sales and lower their expenses. The price reductions will also act as a luring factor to gain more customers.
The sector still faces the uncertainty of new lockdowns and other restrictions, however, with mass vaccines underway, and the government announcing a new four-step plan to ease England’s lockdown, which could see all legal limits on social contact lifted by 21 June, if strict conditions are met, there is an optimism of the industry recovering.
Stay tuned to the Latest Tax Updates and Lower your VAT woes with the Tax Outsourcing Services from Initor Global UK!
VAT is a crucial tax aspect for any business in the UK. Handling the VAT compliance requirements can seem perplexing for many ventures. However, with robust tax outsourcing companies like Initor Global, you can avail of best-of-breed services to address your VAT and other tax concerns. Contact our professionals now!