A practical guide to navigating VAT for your food truck, cafe, or restaurant.
VAT (Value Added Tax) can seem daunting for hospitality business owners, but getting it right is essential for staying compliant and maximising your profitability. This guide will walk you through when and how to register for VAT, how it applies to the hospitality industry, and how to manage it effectively in your business.
What Is VAT and Who Needs to Register?
VAT is a tax added to the value of goods and services at each stage of production or distribution. Businesses collect VAT from their customers and pay it to HMRC (Her Majesty’s Revenue and Customs).
As of 2025, the VAT registration threshold in the UK is £85,000 annual turnover. If your business exceeds this threshold within any rolling 12-month period, you must register for VAT.
Why register voluntarily?
Even if you’re below the threshold, registering can allow you to reclaim VAT on your business expenses (input VAT), which can be beneficial for startups with high initial costs.
VAT in the Hospitality Industry
The hospitality industry has specific VAT rules. Here’s a quick overview of common VAT rates:
• Standard rate (20%): Applies to alcohol, soft drinks, and meals served in a restaurant or cafe.
• Reduced rate (5%): Covers hot takeaway food and non-alcoholic drinks.
• Zero rate (0%): Includes cold takeaway food like sandwiches, but not luxury items such as ice cream.
Example:
• A customer eats a meal at your restaurant – standard rate VAT applies.
• They take a cold sandwich away – zero-rate VAT applies.
Clear labelling and staff training can help avoid misclassifying VAT rates.
When and How to Register for VAT
When to Register
• You must register when your VAT-taxable turnover exceeds £85,000 in any 12-month period.
• Voluntary registration may also make sense if you purchase a lot of goods or equipment that include VAT.
How to Register
1. Visit HMRC’s VAT registration page.
2. Provide details including your business structure, turnover, and bank account information.
3. Once registered, HMRC will provide a VAT registration number and your effective date of registration.
Managing VAT in Your Business
Calculating VAT
• Output VAT: VAT you charge on sales.
• Input VAT: VAT you pay on purchases.
For example:
• If you sell a meal for £12, you include 20% VAT (£2.40) in that price.
• If you bought ingredients for £6 including VAT (£1), you can reclaim that £1.
Keeping Records
• You must keep VAT records such as invoices, receipts, and VAT return submissions.
• With the UK’s Making Tax Digital (MTD) initiative, businesses must use compatible software to record and submit VAT returns.
Filing VAT Returns
• VAT returns are usually submitted quarterly.
• Deadlines are one month and seven days after the end of your VAT period. Missing deadlines may result in penalties.
Common VAT Pitfalls in Hospitality
1. Misclassifying VAT Rates: Mistakes in applying the correct VAT rate to items like takeaway vs. eat-in meals can lead to costly errors.
2. Tips and Service Charges: Voluntary tips are exempt from VAT, but compulsory service charges are taxable.
3. Pricing: If your menu prices include VAT, ensure it’s accounted for in your profit margins.
Tips for Staying VAT-Compliant
• Use cloud-based accounting tools: Systems integrated with your EPOS can automatically track VAT for sales and purchases.
• Monitor turnover: Keep an eye on your 12-month rolling turnover to avoid missing the registration deadline.
• Seek professional advice: Consult an accountant for complex VAT queries or annual audits.
Conclusion
Understanding and managing VAT is critical for the success of your hospitality business. Proper VAT handling ensures compliance and protects your profit margins.
If you’re struggling with VAT tracking or compliance, Seamless POS is designed to simplify VAT management for small hospitality businesses. From accurate record-keeping to integrating with cloud-based software, Seamless makes running your business easier.
For more tips and tools to help you on your hospitality journey, explore our blog or get in touch