VAT significantly impacts your selling price. Many restaurant owners miscalculate VAT, disrupting their profit margins. Learn the step-by-step process for correctly incorporating VAT into your pricing strategy.
I'll admit it – VAT calculations confused me for years as a restaurant owner. Most of us make the same mistake: calculating food costs using VAT-inclusive prices, which makes margins look better than they actually are. Here's how to get your VAT calculations right.
What does VAT do to your selling price?
VAT increases your selling price, but don't mistake it for profit. The VAT collected from customers goes straight to the Tax Authority. For cost calculations and margins, you must always work excluding VAT.
⚠️ Heads up:
Many entrepreneurs calculate their food cost using VAT-inclusive prices. This makes your food cost appear lower than reality.
VAT rates in hospitality
Different VAT rates apply in the Netherlands for hospitality:
- 9% VAT: Food and drinks in the restaurant
- 9% VAT: Takeaway and delivery of food
- 21% VAT: Alcoholic beverages (always)
- 9% VAT: Non-alcoholic drinks in restaurant
Most dishes fall under the 9% rate. But alcoholic beverages? Always 21%.
From including to excluding VAT
Your menu price includes VAT. To find your actual selling price, use this formula:
Selling price excl. VAT = Selling price incl. VAT ÷ (1 + VAT%)
💡 Example at 9% VAT:
Menu price: €32.00 including VAT
- Calculation: €32.00 ÷ 1.09 = €29.36
- Selling price excl. VAT: €29.36
- VAT amount: €32.00 - €29.36 = €2.64
From every €32 collected, €2.64 goes directly to the Tax Authority.
💡 Example at 21% VAT (wine):
Wine glass: €8.50 including VAT
- Calculation: €8.50 ÷ 1.21 = €7.02
- Selling price excl. VAT: €7.02
- VAT amount: €8.50 - €7.02 = €1.48
From every €8.50, €1.48 represents VAT you must remit.
From excluding to including VAT
Sometimes you work backwards: knowing your desired earnings excl. VAT and seeking the menu price. Then use:
Selling price incl. VAT = Selling price excl. VAT × (1 + VAT%)
💡 Example:
Target earnings: €25.00 excl. VAT on a dish:
- Calculation: €25.00 × 1.09 = €27.25
- Menu price: €27.25 including VAT
List €27.25 on the menu and retain €25.00 after VAT.
Impact on your food cost calculation
VAT directly affects your food cost percentage. From years of working in professional kitchens, I've seen this mistake countless times. Look at this difference:
💡 Difference in food cost calculation:
Ingredient costs: €9.00 | Menu price: €32.00
- Incorrect (with VAT): €9.00 ÷ €32.00 = 28.1% food cost
- Correct (excl. VAT): €9.00 ÷ €29.36 = 30.7% food cost
A 2.6 percentage point difference! Your food cost runs higher than you realize.
VAT and your profit margin
VAT doesn't change your profit margin, but it affects calculation methodology. You must always calculate actual margin based on VAT-exclusive prices.
⚠️ Heads up:
VAT represents pass-through money. It's not your revenue. Always calculate margins excluding VAT.
Practical tips for the kitchen
- Use a calculator: €32.00 ÷ 1.09 = €29.36
- Remember the factor: At 9% VAT, excl. VAT equals roughly 92% of incl. VAT
- Check regularly: Verify your food cost matches the correct selling price
- Track both prices: Work with excl. VAT for calculations, incl. VAT for menus
Tools like KitchenNmbrs automatically calculate with correct VAT rates and display both VAT-inclusive and exclusive prices.
How do you calculate the effect of VAT? (step by step)
Determine the correct VAT rate
For most dishes this is 9%. Alcoholic beverages are always 21%. Check the VAT rules for hospitality if in doubt.
Calculate the price excluding VAT
Divide your menu price by (1 + VAT%). At 9% VAT: divide by 1.09. At 21% VAT: divide by 1.21.
Use the excl. VAT price for all calculations
Always calculate your food cost, profit margin and other figures with the price excluding VAT. This shows your true profitability.
✨ Pro tip
Review your top 12 menu items every quarter to ensure you're calculating food costs with VAT-exclusive prices. This simple check can reveal margin discrepancies of 2-3 percentage points.
Calculate this yourself?
In the KitchenNmbrs app you can do this in just a few clicks. 7 days free, no credit card.
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Frequently asked questions
Should I include VAT in my cost price calculation?
No, always calculate excluding VAT. VAT represents money you pass to the Tax Authority, not your revenue.
Why is my food cost higher than expected?
You likely calculated using VAT-inclusive prices. Using the correct VAT-exclusive price will show a higher food cost percentage.
Does 9% VAT apply to all hospitality items?
No, alcoholic beverages always carry 21% VAT. Food and non-alcoholic drinks in restaurants are taxed at 9%.
How do I quickly calculate excluding VAT?
At 9% VAT: divide by 1.09. At 21% VAT: divide by 1.21. Quick rule: VAT-exclusive equals roughly 92% of VAT-inclusive at 9%.
Must I adjust menu prices if VAT rates change?
Yes, if VAT increases and you want to maintain identical margins, menu prices must rise. Otherwise you'll earn less per dish.
Can I reclaim VAT from my business purchases?
Yes, as a business owner you can reclaim VAT on business purchases. This includes ingredients and equipment for your restaurant.
📚 Sources consulted
- EU Verordening 852/2004 — Levensmiddelenhygiëne (2004) — Official source
- EU Verordening 853/2004 — Hygiënevoorschriften voor levensmiddelen van dierlijke oorsprong (2004) — Official source
- EU Verordening 1169/2011 — Voedselinformatie aan consumenten (2011) — Official source
- NVWA — Hygiënecode voor de horeca (2024) — Official source
- NVWA — Allergenen in voedsel (2024) — Official source
- Codex Alimentarius — International Food Standards (2024) — Official source
- FSA — Safer food, better business (HACCP) (2024) — Official source
- BVL — Lebensmittelhygiene (HACCP) (2024) — Official source
- Warenwetbesluit Bereiding en behandeling van levensmiddelen (2024) — Official source
- WHO — Foodborne diseases estimates (2024) — Official source
Food Standards Agency (FSA) — https://www.food.gov.uk
The HACCP standards shown in this application are for informational purposes only. KitchenNmbrs does not guarantee that displayed values are current or complete. Always consult the FSA or your local authority for the latest regulations.
Written by
Jeffrey Smit
Founder & CEO of KitchenNmbrs
Jeffrey Smit built KitchenNmbrs from 8 years of hands-on experience as kitchen manager at 1NUL8 Group in Rotterdam. His mission: give every restaurant owner control over food cost.
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