Taxes and VAT

Understanding VAT (Value Added Tax) is essential for UK food businesses. This guide explains how Ordery handles VAT, which items are VAT-exempt, and how VAT displays to customers at checkout.

VAT Overview

VAT is a consumption tax applied to most goods and services in the UK. The standard rate is 20%.

Important for food businesses: Most food and drink items sold for consumption off-premises are VAT-exempt (zero-rated). However, certain items are subject to VAT, including:

• Hot takeaway food
• Soft drinks
• Alcoholic beverages
• Confectionery (sweets, chocolate)
• Catering services

ℹ️ Note: This is a simplified overview. VAT rules are complex. Consult your accountant or HMRC guidance for specific advice.

Configuring VAT Settings

VAT Registration

If your business is VAT-registered, enter your VAT number in Settings → Store.

When to register for VAT:

• Your annual turnover exceeds the VAT threshold (£85,000 as of 2024)
• You choose to register voluntarily

How it affects your storefront: Your VAT number appears on receipts and order confirmations. Customers see VAT calculated at checkout.

If You're Not VAT-Registered

Leave the VAT registration field blank in Settings → Store.

What this means: You don't charge VAT on your sales, and your prices are VAT-inclusive. Most small food businesses below the threshold operate this way.

Marking Items as VAT-Exempt

Most food items are VAT-exempt. You need to mark them as such in your menu.

How to Mark an Item as VAT-Exempt

1. Go to Menu and edit the item
2. Find the VAT Exempt toggle
3. Turn it on
4. Click Save Item

What happens: Ordery excludes this item from VAT calculations. The item shows "(VAT exempt)" in the cart and checkout.

Which Items Should Be VAT-Exempt?

Typically VAT-exempt (zero-rated):

• Cold takeaway food (sandwiches, salads, cold pizzas)
• Fresh bakery items (bread, cakes, pastries) when sold cold
• Most groceries and ingredients
• Milk, tea, coffee (dry/unprepared)

Typically subject to VAT (20%):

• Hot takeaway food (hot pizzas, burgers, fish and chips)
• Soft drinks (Coca-Cola, juice, bottled water)
• Alcoholic beverages
• Confectionery (chocolate bars, sweets)
• Ice cream and frozen desserts
• Crisps and savoury snacks

ℹ️ Note: The line between hot and cold food can be subtle. HMRC defines "hot food" as food heated for consumption while still hot, or kept warm after cooking. Consult your accountant if unsure.

How VAT is Calculated at Checkout

Ordery calculates VAT automatically based on which items are marked VAT-exempt.

Calculation Steps

1. Subtotal: Sum of all items
2. Apply discount (if any)
3. Split into VAT-exempt and taxable totals
4. Calculate VAT (20%) on taxable items only
5. Add delivery fee (delivery fees are typically VAT-exempt for food delivery, but check with your accountant)
6. Final total

Example order:

• 2× Cold sandwiches (VAT-exempt): £12
• 1× Hot pizza (taxable): £10
• 1× Soft drink (taxable): £2
• Discount (10%): -£2.40
• Subtotal after discount: £21.60
• VAT-exempt total: £10.80 (sandwiches after discount)
• Taxable total: £10.80 (pizza + drink after discount)
• VAT (20% of £10.80): £2.16
• Delivery fee: £2 (VAT-exempt)
• Final total: £25.76

How it affects your storefront: Customers see a clear breakdown of VAT at checkout. VAT-exempt items are labelled.

VAT Display at Checkout

What Customers See

In the cart:

• Item names and prices
• "(VAT exempt)" label on zero-rated items

At checkout:

• Subtotal
• Discount (if applied)
• VAT breakdown (amount and percentage)
• Delivery fee
• Final total

On receipts and order confirmations:

• Full VAT breakdown
• Your VAT number (if registered)

💡 Tip: Clear VAT display builds customer trust and reduces queries about pricing.

VAT and Discounts

Discounts are applied to the subtotal before VAT is calculated.

How it works:

1. Calculate discounted subtotal
2. Prorate discount across VAT-exempt and taxable items
3. Calculate VAT on the discounted taxable total

Why prorate? To ensure VAT is calculated correctly. Applying the full discount to taxable items would incorrectly reduce VAT.

Example:

• Order: £30 (£15 VAT-exempt, £15 taxable)
• Discount: £6 (20%)
• Prorated: £3 off VAT-exempt, £3 off taxable
• VAT (20% of £12): £2.40
• Total: £26.40

ℹ️ Note: Ordery handles this automatically. You don't need to configure anything.

VAT and Delivery Fees

Delivery fees for food orders are typically VAT-exempt, but the rules depend on the nature of the service.

HMRC guidance:

• Simple delivery of food (getting it from A to B) is usually VAT-exempt
• Delivery with additional services (e.g., catering, setup) may be subject to VAT

What Ordery does: Ordery treats delivery fees as VAT-exempt by default for food businesses.

⚠️ Warning: Confirm with your accountant whether your delivery service qualifies as VAT-exempt. If not, you may need to account for VAT on delivery fees manually.

VAT Reporting and Returns

If you're VAT-registered, you must file VAT returns with HMRC (typically quarterly).

What you need to report:

• Total sales (output VAT)
• Total purchases (input VAT)
• VAT owed to HMRC or reclaimed

Where to find VAT data:

• Review your order history in Ordery
• Export order history as CSV from the Reports section (see Analytics & Sales guide)
• Use your Stripe dashboard for payment totals
• Consult your accountant for VAT return preparation

💡 Tip: Keep accurate records of all sales, including which items are VAT-exempt. This makes VAT returns much easier.

Best Practices

Audit Your Menu Regularly

• Review each item's VAT status
• Update when you add new items or change preparations (e.g., serving hot vs. cold)

Consult Your Accountant

• VAT rules are complex and change over time
• Get professional advice on item classification
• Ensure your VAT returns are accurate

Label Items Clearly

• Customers appreciate transparency
• Clear "(VAT exempt)" labels reduce confusion
• Display VAT breakdowns prominently at checkout

Keep Good Records

• Track sales by VAT-exempt and taxable categories
• Reconcile your Stripe payments with your VAT records
• Store receipts and invoices for at least six years (HMRC requirement)

Common Questions

Q: Do I need to register for VAT? If your annual turnover exceeds £85,000 (2024 threshold), yes. Otherwise, it's optional. Consult your accountant.

Q: What if I mark an item incorrectly (VAT-exempt when it should be taxable)? Update the item in your menu immediately. Incorrect VAT can cause issues with HMRC. Review your past orders and adjust future VAT returns if needed.

Q: Can I set different VAT rates for different items (e.g., 5%, 10%)? Ordery supports two VAT rates: 0% (VAT-exempt) for zero-rated items and 20% (standard rate) for taxable items. Reduced rates (such as 5%) are not currently supported.

Q: How do I handle VAT if I sell to customers outside the UK? For now, Ordery is designed for UK-based food businesses. If you export or sell internationally, consult your accountant about VAT on distance sales.

Q: What if a customer queries the VAT on their order? Refer them to the order confirmation email, which shows the VAT breakdown. Explain which items are taxable and why.

Q: Do I charge VAT on dine-in orders? Dine-in meals are typically subject to VAT (unless your total turnover is below the threshold and you're not VAT-registered). Mark dine-in items as taxable.

Q: How does Ordery handle zero-rated vs. exempt items? In practice, most food items are zero-rated (0% VAT), not technically exempt. Ordery simplifies this by using the "VAT Exempt" label for zero-rated items.

What's Next?

With VAT configured, explore:

• Managing Your Menu — Mark items as VAT-exempt
• Payments Setup — Understand how payments and VAT interact
• Compliance & Safety — Legal requirements for food businesses

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