VAT for a coffee shop?

Discussion in 'Accounts & Finance' started by avalore, Oct 3, 2008.

  1. avalore

    avalore UKBF Regular Free Member

    Posts: 68 Likes: 7
    I seem to remember reading somewhere that coffee is zero rated? Is this right?

    Also, for example, if I open a coffee shop and also sell muffins, cake, pastries, juice, smoothies etc....what will I have to charge VAT on?

    If its all zero rated and I break the VAT threshhold do I still have to register and can I still claim VAT on purchases even though I'm not having to charge customers VAT?

    Not really sure how this side of it works?

    Thanks for your help :)
    Posted: Oct 3, 2008 By: avalore Member since: May 12, 2008
    #1
  2. David Griffiths

    David Griffiths UKBF Regular Moderator

    Posts: 10,153 Likes: 3,226
    You charge VAT on everything that is consumed on the premises - hot or cold - as that is a supply in the course of catering, which is standard rated.

    If you sell items that people can take away to eat, then it remains standard rated if it is sold hot (there is an exception for something like a freshly baked loaf or pie).

    Some cold items that you sell to eat away from the premises are zero rated, such as sandwiches, cakes etc. Others are standard rated, such as confectionery, chocolate biscuits, most drinks.

    Coffee sold as a hot drink is standard rated. If you sell coffee beans, or roast or ground coffee for customers to take home, that's zero.

    You almost certainly need to look at the VAT guidebooks and/or talk to somebody who knows the rules.

    (That's the situation once you exceed the VAT registration limit of £67,000. Before then, of course, you don't pay the VAT)

    Sometimes even sandwiches etc are standard rated even if eaten off the premises, if the supply is caught by the catering rules.
    Last edited: Oct 3, 2008
    Posted: Oct 3, 2008 By: David Griffiths Member since: Jun 21, 2008
    #2
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  3. Kevin Hall

    Kevin Hall UKBF Regular Free Member

    Posts: 635 Likes: 214
    Wow, this is a complex area! Most accountants get it wildly wrong. If I had a penny for every time an accountant said "but isn't luxury food VATable at 17.5%". No, there is no such wording in the legislation! It's just a list of categories of foods and drinks and you have to look it all up ...

    However, as a rule of thumb, if the food is catered you might well be standard-rated. But you really need specialist advice. As always with VAT, the detail of extactly what you will be serving, how you will be serving it (hot, cold, heated but not intended to be eaten hot, etc.) and whether for eating-in or for takeaway ... and many more factors can all affect the VAT liability of your supplies.

    (But I see Mr Griffiths beat me to it ...!)
    Last edited: Oct 3, 2008
    Posted: Oct 3, 2008 By: Kevin Hall Member since: Sep 10, 2008
    #3
  4. spencergate

    spencergate UKBF Regular Free Member

    Posts: 537 Likes: 94
    Hence if you go to a shop such as pret a manger, you pay a different price if you take away the food, than if you eat-in.
    Posted: Oct 3, 2008 By: spencergate Member since: Apr 18, 2006
    #4
  5. bovine

    bovine UKBF Regular Free Member

    Posts: 930 Likes: 196
    David has it spot on.

    This is why till systems for this sort of environment are usually setup to track eatin and takeaway sales.

    It can simplify the vat calculations for you!
    Posted: Oct 3, 2008 By: bovine Member since: Aug 23, 2007
    #5
  6. Alison Jones

    Alison Jones UKBF Regular Free Member

    Posts: 900 Likes: 150
    Subway have a notice up now explaining that some of the hot sandwiches include VAT and that is why the cost is more then the cold takeaway sandwiches.

    Alison
    Posted: Oct 3, 2008 By: Alison Jones Member since: Mar 14, 2008
    #6
  7. KidsBeeHappy

    KidsBeeHappy UKBF Regular Full Member

    Posts: 7,357 Likes: 1,580
    The general rule of thumb is that if you take a zero product (ie some food stuffs) and then do something to it, you then make it standard rated.

    It will only be zero rated if you sell it in exactly the same format as which you buy it (i.e. buy a loaf of bread in a bag, and sell a loaf of bread in a bag, fine; zero rated. But add time (& value - get it!) and put it in the toaster, and then it's standard rated.)
    Posted: Oct 3, 2008 By: KidsBeeHappy Member since: Oct 9, 2007
    #7
  8. avalore

    avalore UKBF Regular Free Member

    Posts: 68 Likes: 7
    ok, yes it seems very complicated. Everything will be takeaway and nothing will be consumed on the premises.

    I know its going off course a little, but say you expect to reach the threshold within 7-8 months (not saying I am, just an example) then what are the opinions on registering for VAT from the start (you can do this voluntarily right?) in order to stop confusion or negative press/comments when you do reach the threshold and probably have to increase prices (unless you absorbed the costs yourself)?
    Posted: Oct 3, 2008 By: avalore Member since: May 12, 2008
    #8
  9. David Griffiths

    David Griffiths UKBF Regular Moderator

    Posts: 10,153 Likes: 3,226
    That's a pretty dangerous rule! For example, if you cut the bread into slices, add zero rated butter, cheese and onion, and sell it to somebody to take home, that's still a zero rated sandwich

    And just think off all of those ready meals in the chiller down at the supermarket. Zero rated, the lot, unless you can think of some rare exception.

    And you don't have to actually do anything to it to make it standard rated. Buy in a bread roll, and sell it to eat in your shop - bingo.

    Or buy in a nice load of zero rated meat. Keep it for a few days, and then sell it as pet food - kerchink, standard rated.

    Bake some nice fresh pies, hot from the oven. Put them on sale straight away for customers to take out. Zero rated. But put a cloth over them to keep them warm - yes, you got it - standard rated!

    VAT has been called an easy tax with loads of complications :redface:
    Posted: Oct 3, 2008 By: David Griffiths Member since: Jun 21, 2008
    #9
  10. David Griffiths

    David Griffiths UKBF Regular Moderator

    Posts: 10,153 Likes: 3,226

    Why would you increase prices? Charge what you are going to charge from the start. If a cup of coffee is worth £3 to the customer after you have registered, it's worth £3 before you register. Nowhere that I go shows the VAT in the price, or even mentions it! Just accept that your margins will go down a little later on.
    Posted: Oct 3, 2008 By: David Griffiths Member since: Jun 21, 2008
    #10
  11. derren

    derren UKBF Regular Free Member

    Posts: 133 Likes: 13
    One of my clients which I spend a lot of time with is a coffee shop/cafe.

    To add an extra angle, what we have agreed with the revenue is a % of our sales that will be non-vatable.

    So to make things simple, as mentioned above we charge vat on everything sold. Then I perform a little calculation to take just under 7% of the sales out where the VAT is zero rated. This is due to us selling sandwiches etc that are classed as take away.

    We also do oustide catering and we have been advised that if a customer collects food to be taken outside (ie no staff take it and no staff serve it) it also can be non vatable. This happens very infrequent as most of the time its delivered, served or for a company.
    Posted: Oct 3, 2008 By: derren Member since: Aug 21, 2007
    #11
  12. Kevin Hall

    Kevin Hall UKBF Regular Free Member

    Posts: 635 Likes: 214
    A lot is said about VAT and the food industry. But it is dangerous to generalise. Below is the main part of the UK VAT law (lots of rules, with exceptions and exceptions-to-the-exceptions, etc.!): VAT Act 1994, Schedule 8 which lists items supplied "zero-rated" (i.e. without a charge for UK VAT, but with the right to recover all VAT on purchases).

    Group 1

    - Food
    The supply of anything comprised in the General Items set out below [is VAT zero-rated], except-
    ...(a) a supply in the course of catering [which is VAT standard-rated]; and
    ...(b) a supply of anything comprised in any of the Excepted Items set out below [which is VAT standard-rated], unless it is also comprised in any of the items overriding the exceptions set out below which relates to that Excepted Item [i.e. which are therefore VAT zero-rated supplies]

    General items [i.e. VAT zero-rated unless supplied in catering or part of the Excepted Items]
    Item No
    1 Food of a kind used for human consumption.
    2 Animal feeding stuffs.
    3 Seeds or other means of propagation of plants comprised in item 1 or 2.
    4 Live animals of a kind generally used as, or yielding or producing, food for human consumption.

    Excepted items [i.e. VAT standard-rated, unless overridden]
    Item No
    1 Ice cream, ice lollies, frozen yogurt, water ices and similar frozen products, and prepared mixes and powders for making such products.
    2 Confectionery, not including cakes or biscuits other than biscuits wholly or partly covered with chocolate or some product similar in taste and appearance.
    3 Beverages chargeable with any duty of excise specifically charged on spirits, beer, wine or made-wine and preparations thereof.
    4 Other beverages (including fruit juices and bottled waters) and syrups, concentrates, essences, powders, crystals or other products for the preparation of beverages.
    5 Any of the following when packaged for human consumption without further preparation, namely, potato crisps, potato sticks, potato puffs, and similar products made from the potato, or from potato flour, or from potato starch, and savoury food products obtained by the swelling of cereals or cereal products; and salted or roasted nuts other than nuts in shell.
    6 Pet foods, canned, packaged or prepared; packaged foods (not being pet foods) for birds other than poultry or game; and biscuits and meal for cats and dogs.
    7 Goods described in items 1, 2 and 3 of the general items which are canned, bottled, packaged or prepared for use-
    ...(a) in the domestic brewing of any beer;
    ...(b) in the domestic making of any cider or perry;
    ...(c) in the domestic production of any wine or made-wine.

    Items overriding the exceptions [i.e. VAT zero-rated unless supplied in catering]
    Item No
    1 Yoghurt unsuitable for immediate consumption when frozen.
    2 Drained cherries.
    3 Candied peels.
    4 Tea, mateg, herbal teas and similar products, and preparations and extracts thereof.
    5 Cocoa, coffee and chicory and other roasted coffee substitutes, and preparations and extracts thereof.
    6 Milk and preparations and extracts thereof.
    7 Preparations and extracts of meat, yeast or egg.

    Notes:
    (1) "Food" includes drink.
    (2) "Animal" includes bird, fish, crustacean and mollusc.
    (3) A supply of anything in the course of catering includes-
    ...(a) any supply of it for consumption on the premises on which it is supplied; and
    ...(b) any supply of hot food for consumption off those premises;
    ......and for the purposes of paragraph (b) above"hot food" means food which, or any part of which-
    ......(i) has been heated for the purposes of enabling it to be consumed at a temperature above the ambient air temperature; and
    ......(ii) is at the time of the supply above that temperature.
    (4) Item 1 of the items overriding the exceptions relates to item 1 of the excepted items.
    (5) Items 2 and 3 of the items overriding the exceptions relate to item 2 of the excepted items; and for the purposes of item 2 of the excepted items"confectionery" includes chocolates, sweets and biscuits; drained, glace or crystallised fruits; and any item of sweetened prepared food which is normally eaten with the fingers.
    (6) Items 4 to 6 of the items overriding the exceptions relate to item 4 of the excepted items.
    (7) Any supply described in this Group shall include a supply of services described in paragraph 1(1) of Schedule 4.


    It is a complex issue. There are even cases regarding the definition of catering (see Note (3) above). What count as serving food to be eaten on the premises? For example, what count as premises? Formal professional advice is recommended in this area.
    Last edited: Oct 3, 2008
    Posted: Oct 3, 2008 By: Kevin Hall Member since: Sep 10, 2008
    #12
  13. antdurks

    antdurks UKBF Regular Free Member

    Posts: 4 Likes: 0
    Hello- I have a cafe which is VAT registered and have to pay 17.5% vat on the 75K turnover.:(. There is a cafe very close to me which is not registered because the turnover is just below the 67K limit. 2 things- He can afford to undercut me without affecting his GP and he makes more net profit because he doesn't have to pay any VAT. Where is the fairness in this system? Surely it would be fairer to charge the VAT on every £ From the threshold up- otherwise it is not going to be worth increasing my business unless it gets to way above £100K. Can Anyone explain ? Is there any financial gain in having a cafe that is in that 67-100K zone as opposed to keeping below the 67K and not pay VAT!!

    Thanks Ant
    Posted: Nov 25, 2008 By: antdurks Member since: Nov 25, 2008
    #13
  14. youriv

    youriv UKBF Newcomer Free Member

    Posts: 20 Likes: 5
    I agree on the VAT when it comes to reaching the VAT threshold. We are working on our business plan and when you are trying to work out the VAT cost it can really damage the figures when going over 67k.

    I was wondering if anybody knows how much % the VAT cost is compared to the takings for a coffee shop. Is it 5% of the takings for example?

    Can anybody who runs a coffee shop shed some light to this?

    Thank you,
    Youri
    Posted: Nov 21, 2009 By: youriv Member since: Nov 21, 2009
    #14