Don't get your fingers burned on VAT tax issues

As the Great British Bakeoff returns for a seventh series, Emily Coltman gives her top tips for helping make sure your VAT cake doesn't collapse.

The Great British Bake Off (GBBO) is back for another season, which means the coming months will be filled with talk of Baked Alaskas, intricate displays of icing and epic cake-making skills.

But if the expertise on display in the GBBO kitchen inspires you to start your own cake-making or catering business, did you know there are a number of traps to watch out for when you grow big enough to register for VAT And that falling foul of them can be as risky as opening the oven halfway through the cake's baking time

What rate of VAT to charge on your sales

Are you a caterer

HMRC says that if you are making a supply in the course of catering, then you'll have to charge the standard rate of VAT, 20 per cent, to your customers when you sell your wares, unless you're a retailer selling cold takeaway food. That is why coffee shops charge less for muffins you take out to eat, than for those you eat in the shop; they are charging 0per centVAT on the takeaway muffins and 20 per cent on the eat-in ones!

If you have a contract to supply sandwiches and cakes to, for example, a wedding reception or office party, then that's catering and you must charge 20 per cent VAT on the sale. But if you don't have a contract, and take your wares round offices on the off-chance of selling them, you can zero-rate any items that qualify, such as cakes. But not all cakes are made equal! For example:

Who is your customer

If you're supplying food and drink to a customer who's providing services that are exempt from VAT; for example, you are making school dinners, or lunches for the patients in a nursing home, then the food you sell will also be exempt from VAT. Be careful though, you still have to charge VAT on the food you sell for staff and visitors, so watch out for that PE teacher with a huge appetite!

What about reclaiming VAT on what you buy

When you buy food supplies, look out for what is zero-rated and what is standard-rated. Your supplier should be charging you the correct rate of VAT based on

Emily Coltman is chief accountant at FreeAgent.

Further reading on accounts and tax