Zero-rated basic foods and when the zero rate falls away
Which basic foods SARS zero-rates, when take-away service or a mixed bundle makes them standard-rated, and how to set each product's VAT at the till.
By Achekam · · 5 min read · For Running a business businesses in South Africa
A loaf of brown bread on the shelf carries no VAT. The same bread, toasted and handed over the counter with a coffee, may well carry the full rate. For a South African spaza, butchery, deli, farm stall or supermarket, the difference is not academic: charge too little and the shortfall comes out of your margin when SARS assesses the return; charge too much and customers pay tax they never owed.
The rules are short, but they turn on how the food is sold as much as on what the food is. This article walks through the list, the two situations in which the zero rate stops applying, and how to make the till get it right without relying on a cashier's memory.
What the zero rate covers
SARS's VAT page explains that VAT on taxable supplies is charged either at the standard rate, which is 15% at the time of writing, or at the zero rate of 0%. A zero-rated item is still a taxable supply; the rate applied to it simply happens to be nothing.
SARS's VAT 404 guide for vendors (Issue 15, up to date as at 17 December 2024) lists the basic foodstuffs that qualify. They include:
- brown bread and maize meal;
- samp, rice, dried beans and lentils;
- fresh vegetables and fruit;
- hens' eggs and milk;
- pilchards in tins;
- vegetable cooking oil, but not olive oil.
The guide is a summary. The precise wording of each item sits in Schedule 2 Part B to the VAT Act, and that wording matters at the edges: a product that resembles a listed item is not automatically covered. If you stock something that sits close to the line, read the schedule's description rather than going by the shelf label.
Food prepared for immediate consumption
The first way the zero rate falls away has nothing to do with the ingredient. The VAT 404 guide says the zero rate does not apply where a listed foodstuff is prepared for immediate consumption. Its own examples are take-away food and a glass of milk served in a restaurant.
Think of a café that also runs a small grocery corner:
| Sale | How it is sold | VAT treatment under the guide |
|---|---|---|
| A two-litre carton of milk | Taken from the fridge, unopened | Zero-rated as milk |
| A glass of milk | Poured and served at a table | Standard-rated: served for immediate consumption |
| A bag of fresh apples | Picked off the produce stand | Zero-rated as fresh fruit |
| A cup of cut fruit | Prepared and sold to eat now | Check against the guide: prepared for immediate consumption |
The rule follows the supply, not the stock code you bought it under. The same crate of eggs can feed both a zero-rated shelf and a standard-rated breakfast menu.
Sold together with a standard-rated item
The second exception is easy to miss. The guide says the zero rate also does not apply where the zero-rated foodstuff is supplied together with a standard-rated item. A gift hamper, a braai pack that mixes listed and unlisted goods at one price, or a "meal deal" are the kinds of sales to test against the guide before you price them.
Where the items are rung up as separate lines at their own prices, each line keeps its own treatment. Our article on mixed-rate baskets at the till goes through how a single receipt carries lines at different rates.
A related point concerns paperwork. The same guide sets out when a full tax invoice is needed (above R5 000 including VAT), when an abridged one may be issued below that amount, with an exception it names for zero-rated supplies, and that none is needed under R50. If business customers buy food from you in bulk, read that section of the guide for how it applies to you.
Setting each product's VAT in Achekam
With the Point of Sale, Warehousing or Wholesale add-on, the Item Master in the Accounting menu creates products on the server with an SKU, name, category, selling and cost price, opening quantity and VAT treatment. At the till, each line is taxed at its product's own VAT rate, so a 0% product stays at 0%, and any product without its own rate is taxed at South Africa's approved standard rate. You decide whether shelf prices include VAT.
That gives a practical rule: create the zero-rated product and the prepared product as two different items. "Milk 2L" is set at 0%; "Glass of milk" is left at the standard rate. The cashier picks the item that matches how it is being sold, and the till does the rest.
Three things to know before you start:
- Get the treatment right at creation. At the time of writing no screen lets a business change a product's price, cost or VAT treatment after creating it, or deactivate it. A product set up at the wrong rate cannot be corrected on the product itself.
- Exempt is not kept apart. A product marked Exempt in the Item Master is recorded at the till, and on the VAT return, as zero-rated, because the exempt or zero-rated choice is not saved on the product. Most food is zero-rated rather than exempt, but if you also sell an exempt item, that line will land in the wrong box.
- Invoices behave the same way. On a South African business's customer invoice, each line is set to 15% or 0%, and the invoice screen does not tell zero-rated and exempt apart. Our article on VAT on each invoice line covers invoices in more detail.
Every till sale that reaches the server posts a balanced journal in the same step, with output VAT, revenue, the payment method and cost of sales, so your books carry the VAT as it was charged. Posted till sales can also be listed by VAT rate and tax code for any period, which is the report to check before preparing the return.
Why the exempt limitation matters for your return
A VAT return declares zero-rated and exempt supplies on separate lines. If an exempt sale is recorded as zero-rated, the return built from those figures overstates one and understates the other. For a food business with no exempt sales, this never arises. It can for one that also lets out a flat above the shop: the VAT 404 guide says no VAT is levied on the letting of a dwelling under a lease. Keep that rent away from the till and the Item Master, and ask your accountant to check the split before the return is filed.
A monthly check before the return
- Run the till sales listing by VAT rate for the period.
- Scan the 0% lines for anything prepared, served or bundled.
- Scan the standard-rated lines for plain listed foods that slipped through at 15%.
- Note any product created at the wrong rate, and replace it with a correctly set new item.
SARS's VAT 404 guide for vendors carries the zero-rated food list, the immediate-consumption rule and the tax invoice requirements in full. Keep it to hand when you add a new line to your range, and decide the VAT treatment before the product goes on the shelf, not after the first sale.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
