GP calculator inc VAT: take the VAT off first
Benn Asaraf ·
Every kitchen I have worked in had a GP number on the wall. Half of them were wrong. Not by a lot. By about five points, every time, in the same direction.
The reason is VAT. The menu price includes it. The money is not yours. If you work out GP on the price the guest pays, your margin looks better than it is.
The short answer
Take the VAT off the menu price first. Then work out GP on what is left.
A dish at £18 with a plate cost of £4.50 looks like 75% GP. It is really 70%. The other five points belong to HMRC.
What GP and food cost mean
Gross profit (GP) is what is left from the sale after the ingredients. It is shown as a percentage of the selling price.
Food cost % is the other side of the same number. Plate cost divided by selling price. GP % and food cost % always add up to 100.
Plate cost is what the ingredients on one plate cost you. Include trim, waste and the garnish. If you skip those, see yield and waste first.
The selling price in both formulas is the price without VAT. That is the money that stays in the business.
How to take VAT off a menu price
Most restaurant food in the UK is standard-rated. That is 20%. So the menu price is the net price plus 20%.
To get back to the net price, divide by 1.2. Do not take 20% off. Taking 20% off gives you the wrong number.
- £18.00 ÷ 1.2 = £15.00 net. Correct.
- £18.00 × 0.8 = £14.40. Wrong.
The VAT inside a 20% price is one sixth of it, not one fifth. On £18 that is £3.
Worked example: one dish, two answers
Take a main at £18 on the menu. The plate cost is £4.50.
| On the menu price (wrong) | On the price ex VAT (right) | |
|---|---|---|
| Selling price | £18.00 | £15.00 |
| Plate cost | £4.50 | £4.50 |
| Food cost % | 25% | 30% |
| GP % | 75% | 70% |
| GP per plate | £13.50 | £10.50 |
The £3 gap is the VAT. Sell 100 of these a week and you think you made £300 more than you did. Over a year that is over £15,000 of margin that was never there.
Pricing to a target GP
Now flip it. You want 72% GP on the same £4.50 plate.
- Food cost must be 28%. So the net price is £4.50 ÷ 0.28 = £16.07.
- Add VAT: £16.07 × 1.2 = £19.29.
- Round to a menu price. Say £19.50.
- Check it. £19.50 ÷ 1.2 = £16.25 net. £4.50 ÷ £16.25 = 27.7% food cost. GP is 72.3%.
Here is the mistake in reverse. A chef wants 70% GP. He multiplies the plate cost by 3.33 and puts £15 on the menu. Net of VAT that is £12.50. Food cost is 36%. GP is 64%. He is six points under target and does not know it.
The free GP calculator does these steps for you. Enter the menu price with VAT, the VAT rate, the plate cost and your target. It shows the net price, the real GP, the food cost % and the price to charge.
What about VAT on your supplier invoices
The costs side needs the same care. Most basic food is zero-rated in the UK. Your veg, meat and dairy invoices often show no VAT at all.
Some lines do carry 20%. Soft drinks, crisps, confectionery and alcohol are the usual ones. If you are VAT-registered, you claim that VAT back. So cost those lines without VAT too.
The rule is simple. Both sides of the sum, net of VAT. Net plate cost over net selling price.
If you are not VAT-registered, it flips. You charge no VAT, so GP is on the full price. But you cannot claim VAT back, so cost the ingredients with VAT. The threshold is £90,000 of taxable turnover a year. Check with your accountant if you are close to it.
Common mistakes
- Working GP on the menu price. The most common one. It adds about five points to a 70% dish.
- Taking 20% off instead of dividing by 1.2. It knocks too much off the price. Your GP then looks worse than it is, which is a smaller sin, but still wrong.
- Mixing gross and net. Plate cost with VAT on a price without it. Or the other way round. Pick net for both.
- Assuming every item is 20%. Some cold takeaway food is zero-rated. Hot takeaway is standard-rated. If you do both, ask your accountant which items fall where.
- Using one GP target for the whole menu. Desserts and starters can carry more. A steak often carries less. Look at cash per plate as well as the percentage.
What a good GP looks like
Most UK kitchens aim for 65–72% GP on food. That is on the net price. If your sheet says 75% and you never checked the VAT, you are probably nearer 70%.
There is more on targets by type of place in what GP and food cost to aim for. For setting prices across a whole menu, read menu pricing in the UK.
What to do this week
- Take your five best sellers.
- Divide each menu price by 1.2.
- Work out GP on that net figure.
- Compare it with the number you had. Note the gap.
- Reprice anything that falls under your target.
Plate cost is the slow part. Prices move every week. I built Mise n' Price because my own sheets were always a month behind. You photograph one supplier invoice and the ingredient prices fill in. Each recipe then shows cost per portion and GP, net of VAT. It is in closed beta, free until 13 December.
If you want to do it by hand first, start with costing a dish from a supplier invoice.