Shop VAT and outgoings

[IwanG]

I’ve been a mobile caterer for a few years. It’s always been my intention to go from ‘pop up to permanent’. I know of a company that is an exact carbon copy of mine who have a shop in a large UK city. I’ve done a bit of research as regards to their rent, business rates, menu prices. They also have a franchise document where they state that their weekly turnover is on average £9,230. I’ve put together a list of what I believe the outgoings of such a business. The food will be served hot so like all other such catering establishments the VAT will be vast – but is it quite as vast as £1,750 per week? 20% of £9,230 is £1,846(output VAT) and if I understand things correctly I can only claim input VAT back on certain things - so from the list below, I make it - Repairs to Shop £50, Rubbish collection £20, wi-fi £20, accountants £40, hygiene equipment/packaging £350. Total £480. Weekly VAT bill £1846 - £96(20% of £480) = £1750. Takeaway cold drinks are tax exempt but even then can’t see it making much of a difference overall to that figure. Any feedback on the VAT issue would be appreciated as I’m still trying to get my head around it!!

Secondly – I’ll be paying myself £400 a week and was hoping to make a net profit of 10% of turnover – so roughly 50k. 21k is covered in ‘directors salary’ but I’ve exceeded that £9,230. All the effort hardly seems worth it for 21k a year. I’ll be employing 5 full time staff and 3 part time. How do the figures look to you experience business folk out there – anything I’ve got seriously wrong?

Weekly Outgoings
Rent £577
Rates £577
Service Charge £60
Building Insurance £35
Liability Insurance £20
Repairs/Maintenance £50
Gas £50
Electricity £40
Water £10
Rubbish Collection £20
Wi-fi £20
Train Fare to work £40
Accountants £40
Staff £1960
National Insurance £276
Pensions @ 3% - £60
Staff holiday pay £193
Covering holidays £200
Director Salary £400
Director Pension £80
hygiene equipment/packaging £350
Condiments/beverages £1,050
Bread £250
Meat £1230
bank charges £40
Bank loan £200
VAT £1750

Total - £9578

 

[Scalloway]

Your VAT bill will be 1/6 of your takings.

9250 X 1/6 = 1538

9250 - 1538 = 7692

7962 X 20% = 1538

VAT can be a killer in the restaurant trade as your main costs are food, which is zero rated, and wages which has no VAT on it.

Your figure for gas and electricity is very low.

Your train fare to work is not tax deductible.

 

[Mr D]

Those figures are based on 2020?
If not then do not use them.

Do you need so many staff? Do you need such other bills?

 

[swankypants69]

Takeaway cold drinks aren’t exempt

Perhaps a glass of milk

I suppose cold tea and coffee would possibly be exempt

 

[sminter1st]

You can look at if it helps you to use the flat rate scheme for VAT, pre-COVID for restaurants it was 11.5% for the first year then 12.5%, this year the VAT rate was reduced to help with COVID, that may possibly happen again next tax year? It's more to reduce paperwork but it worked out for us in general.

Not sure of your size, but just for info as a 50-60 seater restaurant, (in northeast) our monthly gas and electric bill varies between £400-£800 depending on time of year and £200 for water. Don't forget to include marketing/advertising. Also music licence if you have even the radio on, and TV licence (although that's minimal obviously), pest control, fire systems/PAT annual checks I'd be inclined to have a slightly higher budget for repairs/maintenance, better to overbudget than under...

 

[IwanG]

Those figures are based on 2020?
If not then do not use them.

Do you need so many staff? Do you need such other bills?

Yes they are based on 2020 - this venture won't be getting off the ground until at least Sep 2021 so the figures will need to be revised next year. The concept is based around cooking meats slowly overnight so 2 staff members will be rotating every few nights just to cover the night shift. No way around it I'm afraid. 3 full time staff members and myself to cover opening hours. Which bills do you refer to as 'such other bills'?

 

[IwanG]

You can look at if it helps you to use the flat rate scheme for VAT, pre-COVID for restaurants it was 11.5% for the first year then 12.5%, this year the VAT rate was reduced to help with COVID, that may possibly happen again next tax year? It's more to reduce paperwork but it worked out for us in general.

Not sure of your size, but just for info as a 50-60 seater restaurant, (in northeast) our monthly gas and electric bill varies between £400-£800 depending on time of year and £200 for water. Don't forget to include marketing/advertising. Also music licence if you have even the radio on, and TV licence (although that's minimal obviously), pest control, fire systems/PAT annual checks I'd be inclined to have a slightly higher budget for repairs/maintenance, better to overbudget than under...

It would be more of a Subway type fast food restaurant- with just a few tables sitting roughly 20 people. I'll be looking for somewhere that is roughly 65/70 square meters with a 50/50 split between preparation area and serving/sitting area. Naive question perhaps- is commercial water meter based? Won't have any radio or TV. As regards to advertising I was thinking of setting a campaign/launch budget and then doing the rest myself through Facebook and instagram. Do you mind if I ask how much you pay for advertising/marketing on a monthly basis?

 

[Scalloway]

Commercial water is normally meter based.

 

[IwanG]

Your VAT bill will be 1/6 of your takings.

9250 X 1/6 = 1538

9250 - 1538 = 7692

7962 X 20% = 1538

VAT can be a killer in the restaurant trade as your main costs are food, which is zero rated, and wages which has no VAT on it.

Your figure for gas and electricity is very low.

Your train fare to work is not tax deductible.

Would £200 electricity/£200 gas/£200 water be a better estimate for a subway type fast food outlet per month? Roughly 70sq meters in size

 

[Scalloway]

The restaurant I was familiar with only had a lunch service and a dinner service so the pattern of usage would be different but your figures aren't unreasonable.

 

[Mr D]

Yes they are based on 2020 - this venture won't be getting off the ground until at least Sep 2021 so the figures will need to be revised next year. The concept is based around cooking meats slowly overnight so 2 staff members will be rotating every few nights just to cover the night shift. No way around it I'm afraid. 3 full time staff members and myself to cover opening hours. Which bills do you refer to as 'such other bills'?

Ah, slow cooked meat overnight.
Done well it's a great product.

You have factored in sick leave and at least 28 days holiday per full time staff member? Part timers get same but pro rata.
Agency workers or you going in when needed on short notice?
Not to mention people having family problems and of course someone simply quitting with immediate effect.

Not to mention figuring out who is responsible when you are not around - pay them more for responsibility and you cover for them when they are sick or on holiday.


Bills such as marketing, outfitting, health and safety, cleaning etc. Lots of bills can differ between two apparently similar businesses because of different buildings. And different ways of working.
Use an agency cleaning service or pay a cleaner (plus they have sick time and 28 days holiday pro rata etc).

Oh and staff pensions. The business gets to pay but the decision to pay is not yours. It belongs to the staff individually as to whether business ends up paying.

 

[paulears]

I’d agree some figures appear guesses. Internet for example I’m paying 25 quid a month for the office, and my electricity cost is variable. Last month was only 25 quid because it was just three computers and lights, the month before the studio was going non-stop and it was 75. Your electricity costs with 24/7 consumption seem low for catering power levels. Water is also missing the sewerage element, which for food outlets can be very expensive if the water quality is taken into account.

 

[IwanG]

Ah, slow cooked meat overnight.
Done well it's a great product.

You have factored in sick leave and at least 28 days holiday per full time staff member? Part timers get same but pro rata.
Agency workers or you going in when needed on short notice?
Not to mention people having family problems and of course someone simply quitting with immediate effect.

Not to mention figuring out who is responsible when you are not around - pay them more for responsibility and you cover for them when they are sick or on holiday.


Bills such as marketing, outfitting, health and safety, cleaning etc. Lots of bills can differ between two apparently similar businesses because of different buildings. And different ways of working.
Use an agency cleaning service or pay a cleaner (plus they have sick time and 28 days holiday pro rata etc).

Oh and staff pensions. The business gets to pay but the decision to pay is not yours. It belongs to the staff individually as to whether business ends up paying.

Yes I've included staff holidays covering 28 days per staff member. Paying £9 per hour I make it about £10,080 annually so £193 per week. I'm going to try and avoid the extra charge for agency workers and get a pool of students I can turn to - but agency staff will sometimes be inevitable. Ideally if things work out after a couple of years I'd like to appoint a deputy manager to look after the business whilst I'm away at festivals and holidays- in the meantime I'll just have to rely on family. Was thinking of doing most of the cleaning myself - will need to utilise those staff members that that work the overnight shift remember!! Will need commercial cleaners to clean ventilation ductwork and so on. But point taken - the outgoings are endless