Is There VAT on Coffee?

Whether you're buying ground coffee from a supermarket or grabbing a cappuccino from a café, the VAT treatment can vary. In the UK, some coffee is zero-rated, while others are subject to standard-rated VAT, depending on how and where it’s sold. Understanding the difference is important for both consumers and businesses, especially if you're dealing with VAT as part of your accounts.

This guide breaks down when VAT applies to coffee, which types are exempt, and how VAT works for cafés and takeaways.

Is VAT Charged on Coffee?

The answer depends on the context.

Coffee bought in a supermarket or shop (for home use) is zero-rated for VAT. This includes:

• Coffee beans

• Ground coffee

• Instant coffee

• Coffee pods and capsules (intended for home consumption)

However, if you're buying coffee to drink straight away, for example in a café or as a takeaway hot drink, it’s standard-rated and subject to 20% VAT.

Which Types of Coffee Are Not Zero-Rated?

Any hot takeaway coffee or coffee consumed on the premises is subject to VAT at the standard rate. This includes:

• Espresso, lattes and cappuccinos sold at cafés

• Ready-to-drink bottled cold coffee sold in fridges (may vary depending on classification)

• Takeaway drinks from a van, pop-up, kiosk or food truck

Even if the coffee is "to go", it is still standard-rated, unlike most cold takeaway food.

VAT on Coffee Sold by Cafés and Restaurants

If you're running a café or coffee shop, you must charge 20% VAT on all hot drinks served to customers, whether consumed on site or taken away.

This includes:                                     

• Coffee and tea

• Hot chocolate

• Any hot milk-based or espresso-based drinks

These VAT rules are part of HMRC’s treatment of catering and hospitality, where food or drink served in a prepared state is taxable.

Businesses whose VAT-taxable turnover exceeds £90,000 (2024–25 threshold) must register for VAT and charge VAT on eligible sales, including coffee.

Do Cafés Have to Register for VAT?

Only if their VAT-taxable turnover exceeds the VAT registration threshold, which is £90,000 per year. If you're under this threshold, you can register voluntarily, but it's not compulsory.

Once registered, the café must:

• Charge VAT on hot drinks and other standard-rated items

• Provide VAT receipts upon request

• Submit quarterly VAT returns

• Keep accurate records of sales and purchases

Possible Exceptions and Grey Areas

Some VAT situations can get complicated. For example:

• Cold takeaway coffee, like iced coffee, might be zero-rated if not prepared as part of a catering service

• Coffee-flavoured food items, like coffee cake, are often zero-rated

• If coffee is included as part of a meal deal, VAT treatment depends on the total supply and the VAT rating of other items

Always check with an accountant or refer to HMRC's guidance if you're unsure how to treat a specific product.

VAT and Coffee Liqueurs

If you're buying coffee-flavoured alcoholic drinks, such as a coffee liqueur, these are not zero-rated. Alcohol is always subject to VAT at the standard 20% rate, regardless of where it’s sold.

This is different from standard coffee, which can be zero-rated when bought as a raw product.

The ‘Pasty Tax’ Controversy and Hot Drinks

The "Pasty Tax" debate in 2012 helped clarify that hot food and drink sold for immediate consumption is subject to VAT. This includes takeaway coffee and has been consistently treated as standard-rated by HMRC.

So even if you buy a takeaway from a high street bakery or chain café, the hot coffee will always include 20% VAT unless exempted under a specific scheme.

Final Thoughts

Coffee in the UK can be zero-rated or standard-rated, depending on how and where it's sold. If you buy it in a shop to brew at home, there's no VAT. If you buy it from a café or takeaway hot, you’ll pay 20% VAT as part of the price.

For businesses, it’s important to understand these distinctions to stay VAT compliant. For customers, it explains why your £3 flat white includes tax while your supermarket jar of instant doesn’t. Always check your VAT treatment if you're unsure, particularly when preparing invoices or accounts.