Reduced Rate of VAT

VAT Question

My Client is an ice-cream parlour that sells their own homemade ice-cream for consumption within the shop but also as for takeaway. Do my client’s sales temporarily qualify for the reduced rate of VAT as per the rules introduced during the Covid lockdown in 2020?

VAT Answer

The temporary reduced rating introduced by the Government with effect from 15 July 2020 applies to supplies of food for consumption on the supplying businesses own premises and includes such businesses as restaurants, cafes and pubs.

Your clients’ premises will fall into the same type of premises and so any sales of ice cream for consumption on in their own premises will qualify for the reduced rate of VAT. This is currently set at 5% but will increase to a new VAT rate of 12.5% for sales made from 1 October 2020 to 31 March 2021, at which time the VAT rate for the sales will return to standard rate.

Sales of hot takeaway food are also included in the temporary reduced VAT rate.

However, sales of cold food are simply subject to the usual rules governing the VAT treatment of food and section 2.2 of VAT Notice 701/14 confirms that supplies of ice-cream are standard rated.

Your client will therefore need to maintain accurate records to show the split of his sales between those sold for consumption on his premises (currently reduced rate) and those takeaway sales at standard rate.