VAT on Coffee - Rates, Ratings and Exceptions

Whether or not VAT is charged on coffee should be straightforward to answer, but, as with most VAT questions, the answer depends on a number of circumstances.

Is coffee zero-rated for VAT?

Coffee is treated as food for VAT purposes and is therefore zero-rated in most forms and instances. This includes the following types of coffee products:

• instant coffee granules
• ground coffee beans
• coffee beans
• coffee flavourings

Because they are zero rated, no VAT is charged on any of these items.

VAT on coffee sold by cafes/restaurants

While coffee products like instant coffee or ground/whole beans are zero-rated, coffee purchased as a hot drink from a café, restaurant or similar establishment, is subject to VAT at the standard rate of 20%.

Whether the coffee is consumed on the premises or taken away does not affect the VAT treatment. In the same way, VAT is charged on hot coffee purchased from takeaways/street vendors.

Possible exceptions

However, small businesses selling hot drinks may not be VAT registered if the turnover of the business is below the VAT registration threshold and such businesses are not able to charge VAT.

Iced coffee drunk in a café, restaurant or similar establishment is subject to VAT when the coffee is consumed on the premises Iced coffee which is taken away is zero-rated regardless of where purchased.

VAT and coffee liqueurs

Coffee liqueurs are always subject to VAT, whether purchased in a bottle to be consumed later, purchased in a restaurant, pub or similar establishment for consumption on the premises or taken away. In the same way, coffees with alcohol added to them, such as Irish coffee, are subject to VAT.

Key takeaways

• Like many types of food and drink, the VAT treatment of coffee can seem simple at first glance but becomes extremely complex once you factor in the multitude of ways it can be sold, supplied, and served.
• The varying VAT rates depend on whether the coffee is in its unprepared form, such as beans or granules, or if it has been brewed and served as a hot or cold beverage.
• This complexity is further compounded by the type of establishment selling the coffee, whether it's a café, restaurant, or takeaway vendor, and even extends to the presence of alcohol in coffee-based drinks.
• A one-size-fits-all approach simply does not apply when it comes to VAT on coffee.

If your business involves coffee, it is very important to stay informed of the latest rules and regulations surrounding VAT for coffee. We hope this guide has been helpful in shedding some light on these products. If you require specific assistance with your VAT situation, don’t hesitate to contact the Shorts VAT team today using the form below.