VAT and Sales Tax for Restaurants: The Basics

In short: restaurants collect consumption tax on behalf of the government. Under VAT or GST, the tax is built into the price and you account for the difference between what you charge and what you pay on purchases. Under US style sales tax, you add tax to the final sale. Rates and rules differ widely, so set your till carefully and ask a qualified accountant.

About 7 minutes to read. General information as of October 2026. This is not tax advice. Rates and rules change, and no rate is quoted here on purpose: always check your tax authority.

You are not paid the tax. You collect it for the state and pass it on, which is why mistakes are costly: under collecting leaves you to pay the difference from your own money, and over collecting can break consumer law.

Two main systems

VAT and GST

VAT (value added tax) and GST (goods and services tax) are used across the UK, the EU, Australia, Canada, India and many other countries. A business charges the tax on its sales and can reclaim the tax it paid on its purchases. It pays the difference to the tax authority. In effect, the tax lands on the final customer, but businesses collect it at each step.

For a restaurant this usually means:

• The price shown to guests includes the tax (in the UK and EU).
• The receipt may show the tax portion.
• You register once you pass a threshold, and then file regular returns.
• You can reclaim tax on many business purchases, subject to the rules.

The European Commission explains the common EU VAT system and the national rates on its VAT pages, and GOV.UK has the UK rules.

Sales tax

In the United States, there is no federal sales tax. States, and often counties and cities, set their own rates and rules about what is taxable. The tax is added to the bill at the final sale, and a business that buys ingredients for resale generally does not pay sales tax on them. Prepared food is often taxed differently from groceries, but it varies by state and locality. The US Small Business Administration has a starting point, and your state revenue department is the authority for your location.

Same meal, different tax treatment

Tax can change with how the food is sold.

In the UK, for example, food eaten in and hot takeaway food are generally standard rated, while many cold takeaway foods are zero rated, with exceptions. Our guide to VAT on UK takeaway and delivery food goes through the tests in detail. HMRC's rates of VAT on different goods and services is the official list.

Set up your till

Your point of sale applies the tax automatically, so what you give it decides what you charge.

1. List every menu item and decide its tax class with your accountant.
2. Define service types: eat in, collection, delivery, and the same for online orders.
3. Link tax codes to item and service type, not to the cashier's guess.
4. Check bundles and deals as each part may carry a different tax.
5. Test receipts for a few typical baskets.
6. Write the reason for each code, so a review is quick.
7. Review whenever you add a dish, a deal or a channel, and whenever the law changes.

DineHarbor's point of sale and reports record sales and tax per order, so you can check your returns against the till. Always confirm that the tax settings match your accountant's advice, because the software does what you configure.

Prices and receipts

Rules about showing prices differ.

• UK and EU: consumer prices must include VAT, and a receipt or invoice should show the VAT in a way the law specifies for VAT registered businesses.
• US: menu prices usually exclude sales tax, which is added at payment.
• Everywhere: if you add a service charge or a delivery fee, make it clear. See tips and service charges.

Registration and returns

Most countries ask businesses to register once their taxable sales pass a set threshold, and some allow earlier voluntary registration. Thresholds change from year to year, so check the official page rather than an old article. In the UK, see GOV.UK, when to register for VAT.

After registering, you file returns at set intervals and pay what you owe. Put each deadline in a calendar. See cash flow: tax collected is not your money, so keep it aside.

Records

Keep:

• Daily sales reports showing the tax collected.
• Purchase invoices that show the tax you paid.
• Records of refunds, voids and discounts.
• Copies of returns and payment confirmations.
• Documents about any special schemes you use.

See accounting basics for a weekly routine, and keep records for as long as your tax authority requires.

Common mistakes

• Using one tax code for the whole menu.
• Forgetting that a delivery fee or service charge may be taxed differently.
• Setting the till for a rate and never reviewing it.
• Treating collected tax as spendable cash.
• Ignoring a registration threshold until it is passed.
• Guessing the tax on a new type of product.

Talk to an accountant

Ask a qualified accountant to confirm:

1. Whether you should register and when.
2. The tax class of each item and service type.
3. How to treat tips, service charges, discounts and vouchers.
4. Which purchases you can reclaim tax on.
5. What records and filing dates apply.

A short meeting before you open saves expensive fixes later.

Ready to set up a till? Start the 30 day free trial with no card needed.