Common allowable expenses
The basic test is wholly and exclusively. A cost is allowable if it is incurred wholly and exclusively for the business, and any private element is excluded.
The day to day running costs of a food business are normally allowable, including the following.
- Ingredients and stock, including food, drink and consumables.
- Staff wages, along with employer National Insurance and pension contributions.
- Packaging, such as containers, bags, cutlery and napkins for takeaway orders.
- Utilities, including gas, electricity and water.
- Rent and business rates on the premises.
- Cleaning, including products, waste collection and pest control.
- Licences, such as a premises licence, a music licence and food hygiene related costs.
- Insurance, including buildings, contents, public liability and employer liability cover.
- Marketing, such as menus, leaflets, social media advertising and listings on delivery platforms.
Kitchen equipment is usually treated as capital rather than an everyday cost, but it is still relieved, as the next section explains.
Expenses people often miss
Food businesses often miss reliefs on the larger items and on the smaller recurring costs.
Kitchen equipment and capital allowances. Items such as ovens, fryers, refrigeration, dishwashers, extraction and furniture are capital because they last beyond the year of purchase. Rather than deducting them as a running cost, you claim them through capital allowances, and most qualify for the Annual Investment Allowance, which gives full relief on qualifying plant and machinery up to £1,000,000 in the year. That means a typical kitchen fit out can usually be relieved in full in the year you buy it.
Repairs to equipment and premises. Repairing an existing oven, fixing the premises or servicing extraction is a running cost, separate from buying new equipment.
Small consumables and sundries. Cleaning cloths, gloves, first aid supplies, till rolls and uniforms for staff are easy to overlook.
Bank charges and card machine fees. The cost of taking card and contactless payments is allowable.
Delivery platform commission. Commission charged by delivery platforms on each order is a genuine business cost.
Risky or commonly challenged expenses
Some costs need care because they are either not allowable or only partly so.
Owner meals and staff food. Food you eat yourself is not a business cost. Reasonable staff meals provided on duty can be a different matter, but be clear about the basis and keep it sensible.
Client entertaining. Entertaining customers or suppliers is never allowable, even in your own restaurant.
Everyday clothing. Ordinary clothes are not allowable. Genuine branded uniform or protective wear such as chef whites and safety footwear is.
Capital versus repairs. Buying a brand new commercial oven is capital and goes through capital allowances, while repairing the existing one is a running cost. Fitting out a whole new kitchen is capital, not a repair.
VAT on food is genuinely complex. As a broad rule, hot takeaway food is usually standard rated for VAT, while some cold food is zero rated, and the treatment can turn on whether food is eaten in or taken away. Getting this wrong is costly, so our VAT page is a sensible starting point if you are registered or close to the threshold.
Records to keep
Tight record keeping protects your margins and your claim. Keep the following.
- Supplier invoices for ingredients, drink and consumables.
- Payroll records for wages, employer National Insurance and pensions.
- Purchase invoices for equipment, so you can claim capital allowances correctly.
- Utility, rent and rates bills.
- Till and card machine reports showing daily takings.
- Delivery platform statements showing sales and commission.
If you run the business as a sole trader or partnership, keep records for at least 5 years after the 31 January deadline for the relevant tax year. If you operate through a limited company, keep them for 6 years. Reliable bookkeeping through the year keeps your takings, stock and wages straight and makes VAT returns far easier.
A worked example
A small takeaway in its first year
Layla opens a takeaway and takes £120,000 in sales in her first year. Her ingredients and stock cost £42,000, staff wages including employer costs are £30,000, packaging is £4,000, rent and rates are £14,000, utilities are £6,000 and other running costs such as cleaning, licences, insurance and marketing total £8,000. That is £104,000 of running costs. She also spends £25,000 fitting out the kitchen with an oven, fryer, refrigeration and extraction, all qualifying plant and machinery. Using the Annual Investment Allowance she can claim the full £25,000 in the year. Her taxable profit is £120,000 less £104,000 running costs less £25,000 capital allowances, which leaves a small profit of £9,000 in a heavy investment first year.
The key point is that the £25,000 kitchen fit out is not lost just because it is capital. The Annual Investment Allowance lets her relieve it in full in the year she buys it.
Common mistakes
The errors that cost food businesses most are these.
- Treating equipment as a running cost. Kitchen equipment is capital and goes through capital allowances, usually the Annual Investment Allowance, rather than being deducted like ingredients.
- Claiming owner meals and client entertaining. Neither is allowable.
- Getting VAT on hot food wrong. Hot takeaway food is usually standard rated, and mistakes here build up quickly.
- Poor takings records. Incomplete till or platform records make your sales figure hard to support.
- Forgetting delivery commission. Platform commission is a real cost and should be recorded against the related sales.
What you should do
Split your spending into running costs and capital items, and make sure your kitchen equipment is claimed through capital allowances rather than missed. Keep every supplier invoice, full takings records and your delivery platform statements, and get clear advice on VAT before it becomes a problem, especially if you sell hot food.
If you are opening a new site, fitting out a kitchen, or wrestling with VAT on food, specialist help is worth it. See how we support food businesses on our accountants for restaurants page, or start your quote for a fixed fee.
A practical guide to the costs a restaurant or takeaway can deduct, including ingredients, wages, kitchen equipment and capital allowances, with a worked example and a note on VAT.
Frequently asked questions
Can I claim kitchen equipment as an expense?
Kitchen equipment such as ovens, fryers, refrigeration and extraction is capital rather than an everyday running cost, but it is still relieved. You claim it through capital allowances, and most qualifying plant and machinery is covered by the Annual Investment Allowance, which gives full relief up to £1,000,000 in the year, so a typical fit out is usually relieved in full straight away.
Is VAT charged on hot takeaway food?
As a broad rule, hot takeaway food is usually standard rated for VAT, while some cold food can be zero rated, and the treatment may depend on whether food is eaten in or taken away. The rules are genuinely complex, so it is worth getting advice if you are VAT registered or approaching the threshold.
Can I claim staff wages and the cost of employing people?
Yes. Staff wages are allowable, along with employer National Insurance and employer pension contributions. Keep proper payroll records, as these costs are usually one of the largest deductions for a restaurant or takeaway.
Can I claim food that I eat myself?
No. Food you consume yourself is not a business cost. Reasonable staff meals provided while on duty can be treated differently, but keep the basis clear and sensible, and never claim client entertaining, which is not allowable at all.
Is delivery platform commission allowable?
Yes. Commission charged by delivery platforms on each order is a genuine business cost and should be recorded against the related sales. Keep the platform statements so you can show both the sales and the commission deducted.
How long should I keep my records?
If you run the business as a sole trader or partnership, keep records for at least 5 years after the 31 January Self Assessment deadline for the relevant year. If you operate through a limited company, keep them for 6 years.