Irish VAT is insanely complicated, especially for food businesses. With the explicit disclaimer that we are not accountants and you shouldn’t rely on any advice in this post, here are some basic elements of charging for VAT in a café or restaurant, with reference to the relevant pages on the Revenue Commissioners website.
VAT rates explained
Revenue do not refer to VAT rates by their percentages in their documentation. So, for easy reference, here are the four VAT rates used in Ireland:
Second Reduced: 9%
Second Reduced (9%) rate for meals
The Second Reduced rate of VAT was introduced in July 2011, initially for a period of two and a half years, but later extended indefinitely. It is designed to offer a reduced rate for activities that are traditionally labour intensive, including hairdressing and hotels. It applies to cafés and restaurants under the following headings:
the supply of food and drink (excluding alcohol, soft drinks and bottled water) in the course of catering
hot take-away food and hot drinks
Some things are always on the naughty step
It’s useful to bear in mind that the VAT rules are designed to apply the 23% standard rate to anything that could be thought of as a luxury (I like to think of very stern moralising people in white coats occupying a floor of the Collector General’s office in Limerick’s Sarsfield House).
Here’s a list from Revenue of things that you might supply in the course of a meal which should always have 23% VAT applied:
alcohol, bottled drinking water, soft drinks, juice extracted from, and other drinkable products derived from fruit or vegetables,
Ice cream, frozen desserts, frozen yogurts and similar frozen products, and prepared mixes and powders for making any such products or similar products,
savoury products made from cereal or grain, pork scratchings, and similar products such as vegetable crisps, prawn crackers, poppadums,
potato crisps/sticks/puffs and similar products made from potato, potato flour or potato starch,
popcorn, salted or roasted nuts,
biscuits and wafers wholly or partly covered or decorated with chocolate or similar product and
all kinds of chocolates, sweets and similar confectionery.
Zero rated vat on cold takeaway food
This is often a confusing one. Here’s what Revenue have to say about it:
By concession, following prior agreement with the local Inspector of Taxes where the premises provides facilities for the consumption of food and drink on the premises and also has take-away sales, the Zero rate may be applied to those take-away sales of cold Zero-rated food and drink.
N.B. accurate records must be maintained. However, the Standard rate applies to take-away sales of soft drinks, fruit juices, alcohol, bottled waters, confectionery. Take-away sales of cakes liable at the Reduced rate.
Note the requirement that you have to get an agreement to apply zero VAT to cold takeaway food with your local Revenue office.
Juices vs Smoothies
Here’s Revenue’s adjudication on the VAT rate on fruit juice:
Remarks: However, if fruit juices are supplied with a meal, the second Reduced rate applies.
So that’s pretty clear, right? If you serve fruit juice with a meal, it attracts the second Reduced rate (9%). Logic would say that the same would apply to any sort of smoothie - but this is where the people in white coats purse their lips and murmur “Smoothie? Sounds like a luxury to me…” And sure enough, here is Revenue’s advice on smoothies and other blended juices:
Remarks: General term used to describe a range of blended fruit drinks.
So a case of “one juice good, two juice bad”!
How to apply VAT rates in Reg
The easiest way of making sure you have the correct VAT rates in Reg, is to define your Categories to encompass part of a VAT rate. For example, many of our customers have a “Soft drinks and water” category with a 23% VAT rate. When adding a new product, all you need to make sure is that the correct category is selected. (Want to know the category of all your products at once? Use the Price List report in Reports).
You can override the category VAT rate for individual products, simply turn off “Inherit Tax from Category” when you're adding or editing a product, and select another VAT rate.