How paying a service charge for a meal relates to VAT

Updated on June 3, 2022

How the service charge on a restaurant meal explains how the VAT system works.

When you obtain a restaurant bill, it will usually say that the service charge is optional. This not only gives the client the option of deferring payment, but it also provides a VAT benefit because VAT is not owed on this portion of the payment.

This is because the payment is voluntary and not in exchange for any services given by the restaurant; if the service charge were mandatory, it would be subject to VAT. The same is true for the tips. This is the foundation of the VAT system, which is one of the most complicated taxes in existence.

The following items are subject to VAT:

the provision of products or services

by a taxable individual (somebody registered or registerable for VAT)

in the process of or for the benefit of a company

The worth of

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