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Ask Your Own Question, Chartered Certified Accountant
Category: Tax
Satisfied Customers: 5115
Experience:  FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
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I understand that cold food sales are zero rated

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I understand that cold food sales for takeaway are zero rated for vat purposes. Anything hot is standard rated including coffee. So if I was selling cold sandwiches and hot coffee from a van I'd be selling mixed sales and vat would be due in the coffee but not the sandwiches. Is this first of all correct? Secondly. If I gave coffee away free subject to the purchaser buying some of my cold food could I avoid theVAT on hot sales? As I'm not selling any coffee at all. It's all free. Or would I need to make the coffee free completely and not dependant of on customer qualifying by purchasing something? Please advise on this specifically and any other VAT/Tax elements you believe prudent for me to consider as I set up a new venture.

Hello and welcome to the site. Thank you for your question.

You are correct in your understanding that VAT at standard rate would only apply to coffee (hot drinks/food) when you have mixed sales.

You could give away free coffee if the customer bought cold food that is not subject to VAT and that free coffee would not attract VAT at the sales value is NIL.

You don't have to make coffee free of charge if the customer only wished to buy coffee. You would have to make it clear to customers and on your price list to alleviate any issues with VAT office in the future.

If possible you should program your till to account for coffee at normal price and coffee as a give away. What is important is to separate taxable sales with a value from sales with no value.

I hope this is helpful and answers your question.

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Customer: replied 2 years ago.
This is helpful. Thank you. Please further clarify if there is a benefit for me to do this to avoid VAT? I understand there is a VAT threshold. If my sales exceed this but all sales are 0 rated I would in theory pay no vat. I would still need to register for vat though once sales pass the threshold, right?Equally I understand that then any input vat is not reclaimable by me. Unless it's capital expenditure above a certain value right? I'm thinking of new coffee machine, van fit out etc which are all vat-able. I'm thinking that seeing as all my sales are 0% I should register for vat before passing the threshold so I can reclaim vat on set up costs. What do you think? Any additional advice on best practice and how to minimise vat during the cashflow critical set up phase would be much appreciated.
Lee, thank you for your reply.

You must register for VAT if you reach the threshold for VAT registration. VAT taxable turnover includes standard rated and zero-rated sales.

You may be confusing with VAT Flat rate scheme when looking at reclaimable VAT input.
More information on this can be found here

It may be benefical in your case to go for voluntary registration if you have expenditure that has VAT to be reclaimed to take advantage of it.

I hope this is helpful.