QUESTION: I am making plans to open a new food truck this coming spring and I’m currently preparing a budget to get a small business loan. Do I need to factor in VAT in this budget?
ANSWER: It’s great to see you taking a brave and proactive step with setting up your business.
The VAT implications of food are not straightforward to say the least. Whilst the food and hospitality industries are like all other businesses in that they must become VAT registered once their annual turnover reaches £90,000, you may want to voluntarily register for VAT before your sales reach this threshold to make sure you can recoup the VAT on your initial set up costs.
The specifics of whether food sales are VATable and at what rate can be a minefield, factors which can affect VAT rates include whether sales are hot or cold, their chocolate content and whether they are eaten in or taken away.
- The main rules in relation to takeaway food and drink are:
- Hot take away food is most likely to be standard rated for VAT (20%);
- Hot take away drinks are standard rated (20% VAT);
- Cold take away food and drink are normally zero rated for VAT. Unless it’s usually standard rated (this includes things like crisps, sweets, bottled water etc).
Conscious that it is a food truck you are intending to run, but it is not clear if you will provide outside seating for customers. If you serve food and drink not to be taken away, you must charge VAT on everything.
Examples of premises include an outdoor area with tables and chairs, for the use of customers only and a stall in a sports stadium, amusement park etc with facilities for use of customers.
Basically, any area with tables and chairs specifically for the use of your customers.
Once you have determined the VAT treatment of the items you are selling, you will need to set up your till system so that VAT is correctly charged with each transaction.
You will essentially collect the VAT on your sales and pay over to HMRC via quarterly VAT returns. You will be able to reduce the amount of VAT you have to pay over to HMRC by reclaiming the VAT on your business purchases.
For the purpose of your budget, if you do not register for VAT prior to your sales reaching the threshold, VAT on purchases will be a true cost to you running your business but you will not need to charge your customers VAT on sales. However, if you register for VAT, you will still need to factor in VAT, in terms of its cashflow i.e. timing when the VAT has to be reported to HMRC, since returns are typically prepared on a quarterly basis, but
It’s easy to make mistakes when deciding whether or not charge VAT on food, and if you are unsure then we would recommend that you speak to an accountant.
- Feargal McCormack (feargal.mccormack@aabgroup.com) is managing partner at AAB Group Accountants Limited (www.aabgroup.com). The advice in this column is specific to the facts surrounding the question posed. Neither the Irish News nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.
