Increasing costs and VAT black-hole... Any advice?

[PercysBBQ]

We're a somewhat 'high-end' takeaway based in Milton Keynes, by that I mean we've worked hard to establish our brand and stand out from your standard takeaway.

I recently took over the business, which I was an employee for over 8 years. In terms of operations, I know the business inside out, but when it comes to best practice with VAT and what we are, or aren't entitled to, I could do with some advice...

Since taking over the business, I think it would be an understatement to say that we've faced our fair share of hurdles... a worldwide pandemic (spoiler alert for those that missed this) and now, our business which pretty much revolves around a gas hungry grill, we have Mr Putin to thank for our bills likely tripling in the very near future...

Broken appliances, a leak in the toilet, or a few hangry customers was my anticipated worse case scenarios. Killer viruses and WW3 was not factored into my business plan...

What is worse, we appear to be in an industry that faces a VAT black-hole. One of our highest costs is the meat we buy in. However, as the meat comes into us cold, it's zero-rated, and thus leaving us with 0.00% to reclaim. As soon as we heat that meat, we are forced to slap 15 - 20% on everything we sell and a vary narrow selection of other products that we can reclaim on. I would love to hear from other takeaway owners who are in similar positions, and what, if anything, can be done?

Right now any advice or helpful tips would be greatly appreciated.

Thank you in advance.

 

[Scalloway]

VAT is the curse of the catering industry. I used to be the bookkeeper for a restaurant and the only time it didn't struggle with the VAT bill was when the chancellor cut the percentage. I struggle to think of a legal way to avoid paying it.

 

[Mark T Jones]

Being wise after the event, the VAT black hole is one thing that you could/should have predicted.

The best solution is to find an accountant who specialises in this area - the problem won't go away, but they should know efficient ways to handle it.

Or you could just defraud the tax man. But they do get upset when they find out.

It's all relative, though

 

[DontAsk]

Being wise after the event, the VAT black hole is one thing that you could/should have predicted.

Indeed, and every other similar restaurant is in the same boat, facing the same issues and will have to increase prices or cut their margins. It comes down to who goes first.

 

[PercysBBQ]

Perhaps if all us hospitality guys and girls get together and refuse to pay VAT they may wake up and listen... The VAT (although completely unfairly unbalanced for our industry) isn't really the catalyst of the problem... It's just a final nail in the coffin of many hard working small businesses....

 

[Paul Norman]

VAT is, of course, collected by you from your customers.

The best advice I can think of is to treat that money as not being your own as you collect it. Thus it will remain in the bank account until Mr Sunak requires it.

The VAT rules on hot food are odd, I concede. But the customer is presumably giving you the money when they pay the bill.

So you buy a thing for £10. You sell it for £18. £15 of that is yours to keep. £3 is not yours. You are merely keeping it for the VAT man

If, however, that £5 profit is not enough to cover your costs, the problem with the business model is not the VAT.

 

[DontAsk]

The VAT (although completely unfairly unbalanced for our industry)

It's a tax. Are any taxes "fair"?

 

[swankypants69]

Not being able to claim vat back on “cold meat”, you aren’t charged it so you can’t claim it back, I don’t really see why VAT is a specific problem in catering in general

Value Added Tax, you are taking a raw product and adding value to it by processing, thus you have to charge VAT

It’s a tax that is added on the cost of your product plus your profit

I am in retail, have been for years, I now set aside £1,000s a month into premium bonds, so that VAT and tax is covered as and when required

I’ve learnt the hard way once or twice, never again ????