Charge the right VAT in a hospitality business

The VAT you charge depends on what you supply, where the customer eats it and whether it is hot. The standard rate is 20%. The temporary reduced rates for hospitality and holiday accommodation ended on 31 March 2022, and a temporary 5% rate on certain children's meals applied only to supplies made between 25 June and 1 September 2026.

Charge the right rate on catering and cold food

Charge standard-rate VAT on hot takeaway food

An item with a hot filling in bread, such as a bacon sandwich or a hot dog, is standard-rated as a whole. If you sell hot and cold items together for one price and each item is also on your menu separately, you make a mixed supply and must value each item to work out the VAT due.

Treat tips and service charges correctly

Charge VAT on accommodation

Hiring out a room for a meeting is generally exempt unless you have opted to tax, but substantial refreshments served with it are a separate standard-rated supply.

VAT is due when you take a payment for a booking, including a deposit or booking fee. You cannot later reclassify a deposit you keep when a guest cancels or does not turn up as outside the scope of VAT, and you reduce the VAT you account for only to the extent that you refund the customer.

Treat staff meals correctly

Meals you give your employees free of charge are not a supply, so you charge no VAT on them. You can treat the VAT you incur on running a staff canteen, or on meals you pay for your employees, as input tax. If employees pay for meals, including through salary sacrifice, treat what they pay as including VAT and account for it, unless the food is zero-rated.

Free meals and drinks for customers or friends are business entertainment, so you cannot deduct the input tax on them. Sweets or drinks given as part of a meal the customer pays for are the exception. If you give meals to coach drivers or party organisers in return for bringing a group to you, you can deduct the VAT but must account for output tax on your cost.

Set up your till and records

Configure your till to give each product its correct VAT rate, to ask whether cold food is eaten in or taken away, and to record service charges and accommodation separately from food and drink. Reports should split your sales by VAT rate. If your till cannot record the VAT rate of every sale, a retail scheme may let you work out your VAT from daily takings, and HMRC's retail scheme rules include a catering adaptation.