If you plan to trade in food products in the UK or make delicious food dishes including pastries or ice creams to sell, then you will surely need to study vat on food rates if you plan to enter the food industry. Vat or value added tax has been adopted in the UK just like in many eu countries and knowing all about applicable vat rates on food will help you earn better profit margins, file proper vat refunds and also remain on the correct side of the vat law in the UK.
The hmrc or HM Revenue and Customs department that looks after all vat related issues in the UK, Northern Ireland and the Isle of Man, has around 14,000 vat classifications on goods and services that attract various rates of vat. Included within them are various foods including ingredients, and processed and finished foods that are fit for human consumption. You should make it a point to study all these classifications in great detail so that you can place your product in the correct vat slot without any problem in the future. In the UK there are 3 vat rates that cover most products including foods. The first is the standard vat rate of 17.5% that is set to rise to 20% from January 4, 2011. The second is reduced vat rate of 5%, while the third is zero vat rate. Certain goods and services also fall within the vat exempt classification where claiming vat back is quite difficult.
Most foods and food products sold in the UK fall in the standard and zero vat rate. For example, most ingredients used in cooking such as meats of various animals, fishes, vegetables, fruits, cereals, pulses, and even juices fall in the zero vat rate category. Even other ingredients used for cooking food such as cooking oils, salt, starch, sweeteners, flavoring mixes, and several other food additives fall in the zero vat category. If you supply frozen meals or sandwiches to grocery stores then these too are zero rated. However, if you supply sandwiches as part of catering services or supply ice creams, ice lollies, powders or mixes for making ice creams or even frozen yogurt that needs to remain frozen then you will have to charge standard vat rates. Similarly certain types of cakes, biscuits and chocolates fall under zero vat while other forms of the same fall under the standard vat rate.
It would be a better idea to hire an experienced vat agent that is well conversant with uk vat rules related to food products and even eu vat rules if you plan to import food products into the UK before selling them to your clients. You can also refer to notice number 701/14 of May 2002 posted on the hmrc vat website for further details on vat applicable on foods and drinks. It is best to start out in the food industry with complete knowledge on the applicable vat structure on all your foods so that you remain free from any vat audit in the coming days.
The food industry in the UK is huge and so are the vat classifications that change as soon as any food ingredient undergoes even minor changes. It is thus extremely important that you study vat on food rates if you plan to enter the food industry in the UK or any other eu country that follows the system of vat.