How to Calculate Gross Profit on Food in the UK (With VAT Explained)
To calculate gross profit on food in the UK, work from the VAT-exclusive selling price, subtract your ingredient cost, then divide that figure by the net selling price. The formula is:
Gross Profit % = (Net Selling Price − Food Cost) ÷ Net Selling Price × 100
The single biggest mistake UK operators make is leaving VAT in the selling price. VAT isn't yours — you collect it for HMRC — so it must come out before you calculate GP. Get that wrong and every margin on your menu is overstated.
Let's break it down properly.
Step 1: Strip VAT out of your selling price
Most restaurant food sold for consumption on the premises, plus all hot takeaway food, is standard-rated at 20% VAT. To find the net (VAT-exclusive) price from a gross menu price, divide by 1.2.
Net price = Gross price ÷ 1.2
Example: a burger sells for £12.00 on the menu.
- Net selling price = £12.00 ÷ 1.2 = £10.00
- VAT element = £12.00 − £10.00 = £2.00
The £2.00 is HMRC's, not yours. Your gross profit is calculated on the £10.00.
Step 2: Work out your true food cost
Add up the cost of every ingredient that goes into the dish, at the portion size you actually serve. This is where most calculations quietly fall apart, because the price you pay for a sack of onions isn't the cost of the onions on the plate.
You need to account for:
- Pack price to unit price — a 2.5kg bag of cheddar at £18.75 is £7.50/kg, or £0.75 per 100g portion.
- Yield and waste — trimming, peeling and cooking losses. If you buy 1kg of beef but lose 15% to trim and shrinkage, your usable yield is 850g, so your effective cost per usable gram is higher.
- Every component — garnish, oil, seasoning, sauce, the brioche bun. Small items add up across a service.
For our burger, suppose the costed ingredients total £3.20 per portion.
Step 3: Apply the gross profit formula
Now plug the net price and food cost into the formula:
- Net selling price: £10.00
- Food cost: £3.20
- Gross profit (£) = £10.00 − £3.20 = £6.80
- Gross profit (%) = £6.80 ÷ £10.00 × 100 = 68%
That 68% GP is the figure you actually run your business on. Notice what happens if you'd lazily used the £12.00 gross price instead: £12.00 − £3.20 = £8.80, divided by £12.00 = 73%. That five-point gap is pure illusion — it's the VAT flattering your numbers.
A quick reference table
Using a £3.20 food cost across different menu prices:
| Gross menu price | Net price (÷1.2) | Food cost | GP £ | GP % |
|---|---|---|---|---|
| £9.00 | £7.50 | £3.20 | £4.30 | 57.3% |
| £10.00 | £8.33 | £3.20 | £5.13 | 61.6% |
| £12.00 | £10.00 | £3.20 | £6.80 | 68.0% |
| £14.00 | £11.67 | £3.20 | £8.50 | 72.8% |
Working backwards: pricing to hit a target GP
Most kitchens target 65–70% gross profit on food. To price a dish to hit a target GP, use:
Net selling price = Food cost ÷ (1 − target GP%)
Then add VAT back on for the menu price.
Example: your food cost is £3.20 and you want 70% GP.
- Net price = £3.20 ÷ (1 − 0.70) = £3.20 ÷ 0.30 = £10.67
- Add 20% VAT = £10.67 × 1.2 = £12.80 menu price
Round to £12.95 and you've protected your margin with a little headroom.
When food isn't standard-rated
VAT on food in the UK isn't always 20%, and this directly changes your GP maths. Broadly:
- Hot food, and any food eaten in — standard-rated at 20%. Divide by 1.2.
- Cold takeaway food (a sandwich, a cold salad to go) — usually zero-rated. There's no VAT to strip out, so your net price equals your gross price.
This means an identical sandwich can have a different gross profit depending on whether it's eaten in or taken away, because eat-in carries 20% VAT and takeaway doesn't. If you run both channels, calculate GP separately for each.
The rules around hot versus cold and eat-in versus takeaway are genuinely fiddly (HMRC's VAT Notice 709/1 covers the detail), so check your specific products if you're unsure.
Don't confuse gross profit with net profit
Gross profit only accounts for food cost. It tells you nothing about whether you're actually making money. After GP, you still pay for:
- Labour and wages
- Rent, rates and utilities
- Packaging, cleaning, equipment
- Wastage beyond recipe spec
A 70% GP dish can still lose money if it's labour-intensive or sells in tiny volumes. GP is a control metric for your kitchen, not your bottom line — but it's the foundation everything else sits on.
Common mistakes that wreck your GP numbers
- Leaving VAT in the selling price — inflates GP by several points.
- Costing the pack, not the portion — you serve grams, not sacks.
- Ignoring yield loss — raw weight is rarely plate weight.
- Forgetting garnish and oils — invisible costs that erode margin at scale.
- Using stale supplier prices — a 10% jump in cheese or oil quietly drops your GP without warning.
The honest reality
Doing this properly for one dish takes ten minutes. Doing it for a full menu, then re-doing it every time a supplier price moves, is where good intentions collapse — and that's exactly when guessed margins and silent waste start eating your profit.
Want this done for you? PrepSheet is a working chef's toolkit for exactly this. Price any dish in seconds with the free food cost calculator, or grab a ready-made Excel costing template that does the maths for your whole menu — built by a chef, no sign-up to try.
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