Nobody opens a café to become an expert in VAT case law, but a sandwich shop in Winchester is running one of the trickiest bits of the VAT system every time it rings up a sale. The same item can be zero-rated in a paper bag and 20% on a plate. A sausage roll can be 0% at ten past eleven and 20% at ten to one. And the person deciding, in the moment, is whoever's on the till.
So here's the test, applied to the things that actually sit on a counter, with the reason behind each one. If you only read one section, read the table. If your till can't tell these apart, read the last section before your next VAT return.
Three questions decide everything
Every item of food and drink you sell goes through the same three questions, in this order:
- Is it eaten on your premises? If yes, it's 20%. Full stop. It doesn't matter what it is. "Premises" means anywhere you've provided for eating: your tables, the bench outside, the shared seating in a food hall.
- If it's takeaway, is it hot? Hot takeaway food and hot drinks are 20%. Hot means warmer than the air around it when you hand it over, and at least one of five things is true: it was heated so it could be eaten hot, it was heated to order, it's been kept hot since it was cooked, it's in packaging designed to keep it hot, or you advertise it as hot. Miss all five and it isn't "hot takeaway", even if it's warm.
- If it's cold takeaway, is it on the exceptions list? Cold takeaway food is zero-rated unless it's one of the things the law carves out: confectionery, crisps and similar savoury snacks, ice cream and other frozen products, soft drinks and bottled water, and alcohol. Those are 20% wherever they're eaten.
That's the whole framework. The arguments, and there have been many in the tribunals, are all about where a particular item lands.
The counter, item by item
| Item | Takeaway | Eaten in | Why |
|---|---|---|---|
| Toasted panini, made to order | 20% | 20% | Heated to order, so hot takeaway |
| Sausage roll from the heated cabinet | 20% | 20% | Kept hot after baking |
| Sausage roll baked this morning, cooling on the counter, sold in a paper bag | 0% | 20% | Warm only because it's fresh; not kept hot, not marketed as hot |
| Soup to go | 20% | 20% | Heated to be eaten hot |
| Jacket potato with filling | 20% | 20% | Hot, heated to order |
| Cold sandwich, wrap or salad box | 0% | 20% | Cold takeaway food, not on the exceptions list |
| Slice of cake, brownie, flapjack | 0% | 20% | Cakes are zero-rated food |
| Chocolate-covered biscuit or bar | 20% | 20% | Confectionery exception |
| Plain shortbread or digestive | 0% | 20% | Biscuits without chocolate covering are zero-rated |
| Crisps, popcorn | 20% | 20% | Savoury snacks exception |
| Hot latte, tea, hot chocolate | 20% | 20% | Hot drinks are hot takeaway |
| Iced latte or cold brew with milk | 0% | 20% | Cold preparations of coffee and milk are zero-rated |
| Milkshake | 0% | 20% | Preparation of milk |
| Fruit smoothie, fresh orange juice | 20% | 20% | Fruit juice is a soft drink for VAT |
| Bottled water, cans, fizzy drinks | 20% | 20% | Soft drinks exception |
| Ice cream, frozen yoghurt, sorbet | 20% | 20% | Frozen products exception |
| Pizza delivered to a door | 20% | n/a | Hot, and in a box designed to keep it hot |
| Children's meal eaten in | n/a | 20% | The temporary 5% rate ended on 1 September 2026 |
If you think the "why is it warm" test is only a problem for bakeries, Morrisons would disagree. In December 2025 the First-tier Tribunal threw out its appeal against £17 million of VAT on rotisserie chickens sold between 2017 and 2020 (WM Morrison Supermarkets Ltd v HMRC [2025] UKFTT 1542). Morrisons had done what most people would think was enough: the "cool-down" chickens sat on unheated shelves, not under lamps, with no "hot" signage, and its surveys showed most customers took them home to eat later, cold or reheated. The tribunal didn't care what the customers planned. It looked at what was actually handed over: a chicken taken off sale after two hours while still well above room temperature, in a plastic-lined bag that held the heat in and slowed the cooling. That made it hot food at the point of sale, not food that happened to be warm. The packaging alone was enough. So was the fact that the chickens weren't on a cooling trajectory that would make them only incidentally hot. Morrisons also argued HMRC had effectively agreed the zero-rating back in 2012; the tribunal said HMRC was entitled to change its mind.
The lesson for a counter in Winchester is uncomfortable but simple. Taking the heat lamp away and not writing "hot" on the board doesn't settle it. If the item is still properly warm when it's bagged, and the bag keeps it that way, HMRC's position (and now a tribunal's) is that you're selling hot food.
The sausage roll pair is the one to remember, because it's the one HMRC fought hardest over. Since 2012 the question isn't "is it warm?" but "why is it warm?". A pasty that's warm because it came out of the oven forty minutes ago and nobody's done anything to keep it that way is cold takeaway food. Put the same pasty under a heat lamp, or in a foil-lined bag, or write "hot pasties" on the board outside, and it becomes hot takeaway at 20%. Bakeries live on this distinction. Most cafés get it wrong in one direction or the other.
What getting it wrong costs
There are two ways to get this wrong, and they cost different people.
Everything at 20%. This is the one I see most. The till has one sales button, so the cold sandwiches, the cakes and the iced coffees all go through at 20% and the VAT is paid to HMRC. On £300 a day of cold takeaway that's £50 a day you didn't owe, call it £18,000 a year on a seven-day café, handed over for nothing. You can claim it back for four years, but only if the till data can prove what was sold and how. Most can't.
Hot items at 0%. Less common, more dangerous. If the toasted sandwiches or the takeaway coffees have been going through as zero-rated, you've under-declared VAT. HMRC can assess up to four years back, add interest, and add a penalty on top that depends on whether they think it was careless. A café turning over £400,000 a year with a third of it hot takeaway coded wrongly could be looking at a five-figure bill.
Making the till do the work
This is a till problem before it's an accounting problem. The two things the till needs are an eat in / take away choice at the start of every sale, and a VAT rate attached to each product that respects it. In most systems (Square, Zettle, Lightspeed and the rest) that means setting each product up twice, or using a "dining option" that switches the tax rate for the whole basket. Done properly, the daily takings arrive in Xero already split, which is what the takings journal post is about.
Three things to check this week:
- Mixed baskets. A £6 meal deal of sandwich, crisps and a can is a 0% item and two 20% items. The till should apportion, not pick one rate for the lot.
- Outside tables. Food eaten at your own tables outside is eaten on premises. If staff ring it as takeaway because the customer walked out of the door with it, that's under-declared.
- The heated cabinet, and the bag. Anything that lives in the cabinet is hot takeaway. Anything on the counter that happens to be warm isn't, provided you're not marketing it as hot and the packaging isn't holding the heat in. After Morrisons, a foil-lined or plastic-lined bag is as much a tell as a heat lamp. Decide which your products are and set the till up to match.
If the till genuinely can't split eat-in from takeaway, HMRC allows an apportionment based on sampling under what it calls the catering adaptation to the retail schemes. It works, but it has to be agreed and documented, and it's a worse answer than a till that just asks the question.
What I do about it
When a hospitality client joins Lumi, one of the first things I do is walk the menu with them and mark every item: eat-in rate, takeaway rate, and whether it changes depending on where it's sold from. Then we set the till up to match and I check the first month's VAT split against the menu to see if the numbers look like the business. A café doing 60% of its trade in hot drinks and toasties should not be showing 70% zero-rated sales. When it does, the fix is usually a button, not a tax adviser.
Takeaway VAT FAQs
Is a takeaway sandwich zero-rated for VAT?
A cold sandwich sold to take away is zero-rated. The same sandwich eaten at your tables, inside or outside, is standard-rated at 20%, and a toasted or heated sandwich is 20% wherever it's eaten, because it's been heated to order. The rate follows the temperature and the place, not the filling.
Do I charge VAT on takeaway coffee?
Yes on hot coffee. Hot drinks sold to take away are standard-rated at 20%, the same as a hot drink at a table. Cold coffee drinks are different: an iced latte or a cold brew with milk sold to take away is zero-rated, because cold preparations of coffee and milk are zero-rated food. A fruit smoothie or orange juice is 20%, because fruit juice counts as a soft drink.
Why is a pasty sometimes 0% and sometimes 20%?
Because the test is why it's warm, not whether it's warm. A pasty that's cooling naturally after baking, isn't kept hot, isn't sold in heat-retaining packaging and isn't advertised as hot is cold takeaway food at 0%. The same pasty kept in a heated cabinet, sold in a foil bag or marketed as hot is hot takeaway at 20%. Change any one of those things and the rate changes with it.
Do the tables outside my café count as premises?
Yes. Anywhere you've provided for customers to eat counts as your premises for VAT, including pavement tables, a courtyard and shared seating in a food hall. Food eaten there is standard-rated even if the customer ordered it as takeaway at the counter. Only food taken away from the premises altogether can qualify for the zero rate.
What was the Morrisons rotisserie chicken VAT case about?
Morrisons sold cooked rotisserie chickens on unheated shelves, in plastic-lined bags, without calling them hot, and treated them as zero-rated food. HMRC assessed £17 million of VAT for 2017 to 2020 and in December 2025 the First-tier Tribunal agreed with HMRC: the chickens were still well above room temperature when sold and the packaging kept them that way, so they were hot takeaway food at 20%. It's the clearest recent example that packaging and temperature at the point of sale matter more than signage or what the customer intends to do with the food.
Get the rates right at the till
Most takeaway VAT problems are a till set-up problem that turns into a VAT return problem. For the cafés, bakeries and restaurants I work with, that looks like this:
- A menu walk-through — every item marked eat-in rate, takeaway rate, and whether it changes by cabinet, counter or bag
- Till set-up — eat-in/takeaway at the start of every sale, products mapped to the right VAT codes, mixed baskets apportioned
- A sanity check every quarter — the VAT split compared with what the menu says it should be, before the return goes in
- Overpaid VAT reclaimed — up to four years back, where the records can support it
- Plain English — a one-page rate card for the counter, so whoever's on the till doesn't have to guess
This post is intended as general guidance only and reflects rates and thresholds for the 2026/27 tax year. Always seek specific advice tailored to your own circumstances and refer to the latest HMRC guidance.
