Restaurant VAT in the UK: Rates, Takeaway, Service Charge, Tips and Deposits

Food and drink served in a UK restaurant for eating in is standard-rated at 20% VAT, as are hot takeaway food, hot drinks and the delivery of hot cooked meals. Cold takeaway food is generally zero-rated. A compulsory service charge is standard-rated, but a tip the customer freely gives is outside VAT. You must register for VAT once your taxable turnover passes £90,000 in any rolling 12 months. This guide follows HMRC's catering notice (VAT Notice 709/1) and gov.uk, last checked in October 2026.

The 20% standard rate on catering

Most food and drink sold in the UK is zero-rated, but not when it is supplied "in the course of catering". HMRC treats a supply as catering if it is a restaurant, café or canteen meal, if it is for consumption on the premises, or if it is hot takeaway food. All of these are standard-rated, so your menu price includes 20% VAT.

• "On the premises" is wider than the dining room. It includes areas with chairs and tables on the pavement or similar space next to the restaurant, for example.
• Delivery of cooked, ready-to-eat food or meals is also catering, so standard-rated.
• Alcoholic drinks are always standard-rated, as are soft drinks and mineral water, crisps, confectionery and ice cream, whether you sell them cold or not (gov.uk list of VAT rates). Alcohol duty is already in your supplier's price.

Children's meals (ended). HMRC introduced a temporary 5% reduced rate on qualifying children's meals eaten on the premises, from 25 June to 1 September 2026. It has ended, so the standard 20% applies again. Check the notice if you have any unusual billing from that period.

Eat-in, hot takeaway and cold takeaway

For takeaway, the question is whether the food is hot. Notice 709/1 says takeaway food is standard-rated if any part is hot when handed over and at least one of five tests applies: it was heated to be eaten hot, heated to order, kept hot after heating, handed over in packaging that retains heat or is designed for hot food, or advertised as hot.

If you sell cold items both to eat in and to take away, you need to know which was which. HMRC allows a fair and reasonable apportionment if you cannot tell at the point of sale, but you must keep the evidence. A POS that records the order type (dine-in or takeaway) and applies the matching rate to each line avoids the problem. TablePort supports VAT bands across food, drink, and dine-in versus takeaway, and its POS records five order types, so the order type is on every sale. Your accountant should agree the rules first.

Service charge versus tips

Notice 709/1 is short on this: "If you make a service charge, it's standard-rated. But if the customer freely gives a tip above your total charge, no VAT is due on the tip."

Example: a table's food and drink comes to £200.00 including VAT, and a 12.5% service charge of £25.00 is added. If that £25.00 is VAT-inclusive, then £4.17 of it is VAT (£25 ÷ 6) and £20.83 is net sales. If the customer instead adds a £25 tip of their own accord, there is no VAT on it.

The line is whether payment is truly optional. If a charge is added to every bill automatically, treat it as a service charge unless your accountant advises otherwise. Employment law and tax rules around tips, troncs and service charges are separate from VAT; see our guides to service charge law and the Tips Act and tronc, and HMRC's guidance on tips, gratuities, service charges and troncs.

Deposits, no-show fees and cancellations

HMRC's general VAT guide, VAT Notice 700, is clear on the principle:

• Most deposits are advance payments and create a tax point when you receive them (paragraph 14.2.3). A deposit for a table booking that will be set against the final bill is likely to fall into this category.
• VAT is due on charges, deposits and fees which are full or part payments for a supply. If you keep a payment for a meal the customer did not take up, VAT is due on the amount you retain (paragraph 8.13.1). It cannot be treated as outside the scope of VAT.
• If you refund the payment, you can reclaim the VAT you accounted for on your next return.

In practice, if you keep a £20 per head deposit from a no-show, treat it as VAT-inclusive income, so £3.33 per head (£20 ÷ 6) goes to HMRC. HMRC's wording covers payments you retain. A no-show fee charged to a saved card, with no earlier payment, is not spelled out in the same words, so ask your accountant how to book it. Set your deposit policy knowing this; see restaurant deposit policy in the UK. Gift cards and vouchers have their own VAT rules, so ask your accountant.

When you must register

Per gov.uk:

• You must register if your VAT taxable turnover for the last 12 months (a rolling period, not the tax year) goes over £90,000. You must register within 30 days of the end of the month in which you went over.
• You must also register if you expect your taxable turnover to go over £90,000 in the next 30 days alone.
• You can register voluntarily below the threshold.
• Taxable turnover includes zero-rated sales such as cold takeaway food. It does not include exempt or out-of-scope sales.

You can ask to deregister if your expected taxable turnover for the next 12 months is below £88,000 (VAT Notice 700/11). Registered businesses usually send a VAT return every three months (gov.uk). A Lumina Intelligence study of 2024 figures, cited by Sage, puts average UK restaurant turnover at about £308,000, well above the threshold, so many sit-down restaurants are VAT-registered. Individual venues vary, so check your own rolling total.

The Flat Rate Scheme

Under the Flat Rate Scheme you pay HMRC a fixed percentage of your VAT-inclusive turnover and keep the difference. You cannot reclaim VAT on purchases, apart from some capital assets over £2,000. You may be able to join if your VAT turnover is £150,000 or less excluding VAT.

The published flat rates include:

• Catering services including restaurants and takeaways: 12.5% (since 1 April 2022)
• Pubs: 6.5%
• Limited cost business (goods cost less than 2% of turnover, or £1,000 a year): 16.5%
• A 1% discount in your first year of VAT registration

Illustration: net taxable sales of £120,000 (£144,000 including VAT).

The flat rate works out to 15% of net sales (12.5% × 1.2). The standard scheme costs 20% of net sales minus your input VAT. So the Flat Rate Scheme is cheaper only when your input VAT is below 5% of net sales, £6,000 here. Because raw food is mostly zero-rated, restaurant input VAT is often low, but drink, equipment, energy and repairs can push it above the line. Run both calculations on last year's figures and ask your accountant before you apply.

Common mistakes

1. Calculating GP on VAT-inclusive prices. Strip VAT first. See our GP guide.
2. Zero-rating hot takeaway or delivery. Hot food is standard-rated.
3. Leaving service charge out of VAT. A compulsory charge is part of your taxable sales.
4. Ignoring the VAT in a retained deposit or no-show fee.
5. Missing the registration deadline. The test is rolling 12 months, so check monthly.
6. Mixing eat-in and takeaway sales with no record. Keep order-type data so you can prove your split.

Use the menu price calculator to turn a target margin into a VAT-inclusive menu price. This article is general information, not tax advice, and you should ask an accountant about your own situation.