Is There VAT on Coffee?

Coffee is zero-rated for VAT if bought in shops, but VAT applies to takeaway and café coffee. Learn what’s taxed and when businesses must register.

This is one of those questions that sounds simple, but in reality causes a surprising amount of confusion, especially for cafés, coffee shops, takeaways, mobile traders, offices, and anyone buying or selling food and drink as part of their business.

I am asked this question regularly, often after a VAT inspection, a pricing dispute, or a sudden realisation that coffee has not been treated consistently. The confusion usually comes from the fact that VAT on food and drink depends not just on what the item is, but how it is sold, where it is consumed, and who it is sold to.

In this article, I am going to explain clearly and practically whether there is VAT on coffee in the UK, when coffee is standard rated, when it can be zero rated, and why HMRC treats hot drinks differently from cold food. I will also cover real world examples, common mistakes I see in practice, and how to make sure you are charging and reclaiming VAT correctly.

By the end, you should have a clear and confident understanding of how VAT applies to coffee, whether you are buying it, selling it, or both.

The short answer

Yes, there is usually VAT on coffee.

In most cases, coffee is subject to VAT at the standard rate of 20 percent.

However, as with many VAT rules involving food and drink, there are important exceptions and nuances, and the detail matters a great deal.

Why VAT on food and drink is confusing

VAT on food and drink is one of the most complex areas of UK VAT law. The general rule is that most food is zero rated for VAT, but there are many exceptions, and coffee falls firmly into one of those exception categories.

HMRC distinguishes between:

  • Hot food and hot drinks

  • Cold food and cold drinks

  • Eat in versus takeaway

  • How the product is prepared and marketed

Coffee is almost always treated as a hot drink, and that classification drives the VAT treatment.

Why hot drinks are standard rated

Under UK VAT law, hot food and hot drinks supplied for consumption are subject to VAT at 20 percent.

Coffee is specifically treated as a hot beverage, regardless of whether it is consumed on the premises or taken away.

This means that:

  • A cup of hot coffee sold in a café is standard rated

  • A takeaway coffee is also standard rated

  • VAT must be charged if the business is VAT registered

Unlike some food items, coffee does not become zero rated simply because it is taken away.

Does it matter if the coffee is takeaway or sit in?

For coffee, the answer is no.

Whether the coffee is:

  • Consumed on the premises

  • Taken away

  • Served in a disposable cup

  • Drunk elsewhere

The VAT treatment is the same.

Hot coffee is standard rated at 20 percent.

This is different from some food items, where eat in versus takeaway can change the VAT position.

What about cold coffee?

Cold coffee introduces a little more complexity.

If you are selling cold coffee drinks, such as iced coffee, the VAT treatment depends on how the drink is prepared and sold.

In practice:

  • Most cold coffee drinks are still standard rated

  • Drinks intended for immediate consumption are taxable

  • Flavoured or prepared drinks are usually taxable

HMRC generally treats cold drinks as standard rated unless they fall into a very specific zero rated category, which coffee rarely does.

Coffee beans and ground coffee sold in shops

This is where the VAT treatment changes.

Coffee sold as a product for home consumption is treated differently from coffee sold as a drink.

For example:

  • Coffee beans sold in bags

  • Ground coffee sold in retail packaging

  • Instant coffee jars sold in shops

These are usually zero rated, because they are classed as food products sold for consumption at home.

This means:

  • No VAT is charged on the sale

  • VAT registered sellers do not add VAT to the price

  • VAT registered buyers cannot reclaim VAT because none was charged

This distinction between coffee as a drink and coffee as a grocery product is crucial.

Coffee sold in offices and workplaces

Another common question is whether there is VAT on coffee provided in offices.

If a business buys coffee for staff use, such as:

  • Coffee pods

  • Ground coffee

  • Instant coffee

These purchases are usually zero rated, because they are grocery items.

However, if the business buys coffee from a café, coffee shop, or catering service, VAT will usually be charged at 20 percent.

The VAT reclaim position then depends on whether the coffee is considered staff subsistence or entertainment.

Can a business reclaim VAT on coffee?

Whether VAT on coffee can be reclaimed depends on the context.

A VAT registered business can usually reclaim VAT on coffee if:

  • The coffee is purchased for staff consumption

  • The coffee is not part of business entertainment

  • The VAT has been charged correctly

For example, coffee bought for an office kitchen is normally allowable.

However, VAT on coffee bought for clients or customers may be blocked as business entertainment, even though VAT was charged.

Coffee and business entertainment rules

VAT on business entertainment is generally not reclaimable.

If you buy coffee for:

  • Clients

  • Potential customers

  • External meetings

The VAT charged on that coffee is usually not recoverable, even though the coffee itself was subject to VAT.

This often frustrates business owners, but it is a long standing VAT rule.

Coffee sold as part of a meal deal

In cafés and food outlets, coffee is often sold alongside food as part of a deal.

In these cases, coffee does not suddenly become zero rated just because it is bundled with food.

If a meal deal includes:

  • A hot coffee

  • Any standard rated item

The coffee element remains standard rated.

This means careful pricing and VAT allocation is required, especially where different VAT rates apply within a single transaction.

VAT on coffee in cafés and coffee shops

For cafés, coffee shops, and mobile coffee traders, VAT on coffee is usually straightforward in principle, but easy to get wrong in practice.

If the business is VAT registered:

  • VAT must be charged on all coffee sales

  • VAT is charged at 20 percent

  • Prices should be clearly displayed as VAT inclusive

Where problems arise is when businesses mix:

  • Zero rated food items

  • Standard rated drinks

  • Eat in and takeaway sales

Without a proper system, errors quickly creep in.

Coffee and the reduced VAT rate during COVID

During the COVID period, there was a temporary reduced VAT rate for hospitality.

This included:

  • Hot food

  • Hot drinks

  • Coffee sold by cafés

That reduced rate has now ended, and coffee has reverted to the standard rate.

Some businesses mistakenly continued applying reduced rates after they expired, which has led to VAT corrections and assessments.

VAT on coffee supplied by vending machines

Coffee sold through vending machines is also subject to VAT.

In most cases:

  • Hot drinks from vending machines are standard rated

  • VAT must be accounted for on sales

  • Gross takings must be split correctly

Vending machine VAT errors are common, particularly where takings are recorded as gross without separating the VAT element.

Coffee supplied with accommodation

Hotels and serviced accommodation often ask about VAT on coffee provided in rooms or at breakfast.

The VAT treatment depends on how the coffee is supplied:

  • Coffee included as part of a standard rated accommodation charge follows the accommodation VAT treatment

  • Coffee sold separately is usually standard rated

  • Coffee provided free as part of the room is not separately taxed

This area can become complex, and consistency is key.

Common VAT mistakes I see with coffee

Over the years, I have seen the same mistakes repeated again and again.

These include:

  • Treating takeaway coffee as zero rated

  • Assuming all food and drink is zero rated

  • Failing to charge VAT on coffee sales

  • Incorrect VAT coding in tills or software

  • Reclaiming VAT on client coffee that is not allowable

These mistakes often only come to light during HMRC inspections or when profits do not look right.

Why HMRC focuses on coffee sales

HMRC pays close attention to food and drink businesses, particularly cafés and takeaways.

Coffee is a high volume, high frequency item, which makes small VAT errors add up quickly.

From HMRC’s perspective:

  • Coffee sales are easy to test

  • Prices are predictable

  • Errors are often systemic

This is why getting coffee VAT right from the start is so important.

How pricing should work for VAT on coffee

Most coffee shops price their drinks as VAT inclusive, even if they do not explicitly show VAT on menus.

For example:

  • A £3.00 coffee includes VAT

  • The VAT element must be extracted for reporting

  • The net sale is lower than the ticket price

If VAT is not accounted for correctly, profit margins can be overstated or understated.

Coffee, VAT, and cash flow

Because coffee is standard rated, VAT collected on coffee sales belongs to HMRC.

This can create cash flow pressure if:

  • VAT is not set aside

  • Prices are tight

  • Sales volumes fluctuate

I always advise food and drink businesses to treat VAT as separate from day to day cash and to plan for it accordingly.

What if you sell coffee but are not VAT registered?

If you are not VAT registered:

  • You do not charge VAT on coffee

  • You cannot reclaim VAT on expenses

  • Your prices may appear lower

This can give small coffee businesses a competitive advantage, but once the VAT threshold is crossed, the position changes quickly.

Coffee and the VAT registration threshold

Coffee sales count towards the VAT registration threshold.

This includes:

  • Hot coffee

  • Cold coffee

  • Drinks sold on site or takeaway

Once taxable turnover exceeds the threshold, VAT registration becomes compulsory, and VAT must be charged on coffee from that point onward.

How I advise businesses selling coffee

In practice, I advise coffee businesses to focus on three things:

  • Correct VAT setup in tills and software

  • Clear understanding of what is standard rated

  • Regular reviews of VAT reports

Coffee is simple in principle, but only if systems are set up correctly from day one.

Why clarity on coffee VAT matters

Getting VAT on coffee wrong can lead to:

  • HMRC assessments

  • Backdated VAT bills

  • Penalties and interest

  • Stress and lost time

Because coffee sales are frequent, errors compound quickly.

Final thoughts

Yes, there is VAT on coffee in the UK in most situations. Hot coffee sold as a drink is standard rated at 20 percent, whether it is consumed on the premises or taken away. Coffee sold as a grocery product, such as beans or ground coffee, is usually zero rated.

The confusion arises because VAT on food and drink depends on how the item is sold, not just what it is. Coffee sits firmly on the standard rated side of the line when sold as a drink.

In my experience, coffee VAT problems rarely come from deliberate errors. They come from assumptions. Once those assumptions are corrected and systems are set up properly, VAT on coffee becomes manageable and predictable.

If you sell coffee and are unsure whether you are charging VAT correctly, it is far better to clarify it early than to deal with HMRC later.