VAT _ Takeway Business

[HASSAN_ASHTON]

hello

I need some help regarding the VAT process.

I bought a takeaway business and serving hot food to the customers, business currently doing £2,500 a week sale and approx in year it will be over £120,000. Profit margin is 10%-12%

I have checked the threshold for VAT is £85,000.

I pay VAT on drinks and packaging and in one year it will cost me £13,000.

Energy and other bills cost me £15,000

Employee wages £40,000 a year

There is no VAT vegetables, other groceries, chicken and meat etc.

I serve hot takeaway food and also delivered it to the customers doors and there is no VAT charge.

VAT20% and if i choose the flat scheme rate, it be 12.5%.

I am confused here, I want to get VAT registered but will I be paying VAT on £120,000? if yes, I will face a very big loss.

I understand if i get VAT registered, I will have to submit my records quarterly.

I am paying VAT on drinks, bills etc but I am not charging my customers VAT for drinks and hot takeway food. (For drinks, I can arrange to charge VAT once i get registered) but for hot takeway food, i cant. it will ruin my business if i increased anymore prices.

Can somebody please shed some light what do I need to do?

thank you very much

 

[STDFR33]

Once your turnover exceeds £85,000, you must register for VAT.

You can recover any VAT on your purchases (though there won't be much for a takeaway business) and you must charge VAT on all of your sales.

If VAT will kill your business, you have three options:-
1) Close for part of the year to stay under the threshold
2) Charge more
3) Reduce costs

 

[sminter1st]

Using the flat rate the first year you get a 1% discount on the rate. You can consider annual accounting scheme, where you make one VAT return per year and pay 9 monthly interim payments plus a balancing payment at end of year (you get an extra month to sort out your return). I'm just figuring this all for ourselves though, so more detailed info I leave for the experts to provide...

 

[UK Contractor Accountant]

Profit margin is 10%-12%

Gross Profit margin should be 60-70% for takeaway

£120K sales = £100K net of vat
GP% say 65% = £65K
Wages - £40K
Energy bills - £15K
Other Costs - £2K say
Profit before tax = £8K

Do wages include the owners wages/drawings?

 

[UK Contractor Accountant]

I bought a takeaway business

What did the previous owners show as adjusted profits for the business you bought? Seems to me you didn't do your homework before buying the business!

 

[Mr D]

You purchased a takeaway that was not already VAT registered?
£2500 a week sales - has the business in the past 12 months been trading anywhere close to £85k a year?

Get your customers to pay the VAT on what you sell, you have to pay VAT on what you buy but unless on the flat rate scheme you claim relevant VAT paid back.

Once you register for VAT (and you must register when you hit the threshold) you will be charging your customers VAT on all relevant items.
You will be an unpaid tax collector for the government.

 

[HASSAN_ASHTON]

The previous owners used to change the company, lease and different director soon they close to £85,000 mark. I don't want to do this. Weekly safe £2500, flat rate will be 12.5%.
Monthly VAT expenses £3000.

Quarterly £2500 x 4 x 3= 30,000 x 0.125 = £3750 I will must pay.

Monthly vat £3000 x 3 = £9000 x 0.2 = £1800

When I claim my vat back, will it be 20% or 12.5%. Suppliers will still charge me 20%.

£3750 - £1800 = £1950 I must pay quarterly

Is that right?

 

[sminter1st]

You don't claim VAT back, the 12.5 per cent of turnover is what you owe. Each type of business has a different percentage of VAT charged under the flat rate to take account of the average amount of VAT/non-VAT things they purchase.
If you weren't under the flat rate, you would pay £30000/6 =£5000
minus your VAT expenses of £1800 so £3200... But with more paperwork...

I think...

You may have cold food you serve which may not attract VAT obviously...

 

[STDFR33]

You can't use the flat rate scheme and claim vat back.

 

[TheCyclingProgrammer]

You can't use the flat rate scheme and claim vat back.

Except of course on capital purchases of £2k or more, which might be important if OP plans to make any capital investment in the business after they buy it (e.g. new kitchen equipment).

OP, you need to do some rough calculations to see if the FRS makes sense to you. To get a basic idea, you need to know your expected annual turnover (so you can calculate your flat rate output VAT) and your expected annual VATable expenses.

If the difference in the VAT you charge and the VAT you pay to HMRC (called your flat rate surplus) is lower than the expected input VAT on your expenses you will be better off on the standard VAT scheme, unless the difference is minimal in which case you may decide that its still worth being on the FRS for the sake of less paperwork.

 

[Mr D]

So the company you purchased - did this approach or breach the VAT level in the past 12 months?

If doing £2500 a week then 1/6th of that is the VAT you collect (if not on the flat rate scheme).

Flat rate is applied to your sales, no claiming back simply applied as is based on your business.
So if 12.5% rate for you then 12.5% of that £2500 a week would belong to the government.
Once you are VAT registered. And at that level of sales you WILL become VAT registered.

 

[STDFR33]

Except of course on capital purchases of £2k or more, which might be important if OP plans to make any capital investment in the business after they buy it (e.g. new kitchen equipment).

I was trying to keep things simple

If the above figures are a true reflection of the business, it won't be around very long - unless they commit tax evasion like the previous owners.

 

[STDFR33]

unless they commit tax evasion like the previous owners.

To quote myself...

And even they bailed out!