VAT scheme for small catering company

[david.nye]

I am helping a small catering company. Their accountant is not able or willing to advise on this. Currently they use the Standard VAT scheme. This is a typical VAT Return:

VAT due on sales	7803.93​
VAT reclaimed	2296.97​
Net VAT payable	5506.96​
Net sales	39085​
Net purchases	25968​

I think that on the Flat Rate Scheme (FRS) they would pay 12.5% of £46,889 (gross sales) i.e. £ 5,861. But the owner is convinced that other similar businesses are paying much less VAT than he is. He is really struggling to make a living, but other owners of similar businesses claim to be doing OK (but are not willing to divulge their accounting method). So, first I just want to check that I am calculating and understanding FRS correctly, and he really is better of on the Standard scheme (especially as many similar firms seem to me to use FRS.)

But all this is complicated by up to half of sales being delivered by Uber Eats, Deliveroo and Just Eat. Uber Eats is the main issue, since no-one seems to be sure how these sales should be handled in the accounts (and this is the source of the small difference in the VAT due on sales i.e. it is not quite 20%). It seems to me possible that some or all of these sales might be excluded from FRS in any case. Which brings me to my second question; is there anyone with expertise in these areas willing to look at the detailed accounts and advise, for what would have to be a very modest fee, please?

 

[Scalloway]

Catering is an area where the business owner will have hefty VAT bills due to all sales being VATable and two main costs, food and staff, not having VAT on them.

But all this is complicated by up to half of sales being delivered by Uber Eats, Deliveroo and Just Eat. Uber Eats is the main issue, since no-one seems to be sure how these sales should be handled in the accounts (and this is the source of the small difference in the VAT due on sales i.e. it is not quite 20%). It seems to me possible that some or all of these sales might be excluded from FRS in any case.

The gross value of sales must be used for calculating VAT, so if a delivery app takes a cut that is a cost, not a reduction in sales value. Once you are in the FRS all business income counts for calculating turnover, even exempt items.

 

[Bobbo]

It is a shame this company's accountant is unwilling or unable to advise as this is very basic stuff.

The owner is "convinced that other similar business are paying much less VAT than him" and "other owners of similar businesses claim to be doing OK".

They are several reasons why these other businesses might be 'paying' less VAT such as :
- tax evasion (whether deliberate or through ignorance)
- incurring more input VAT
- lower sales


What is the owner's connection to the owner's of these other businesses? Frankly if my business was struggling I wouldn't be admitting that to competitors.

As to the Uber Eats, Just Eat etc, i'm surprised (and tbh concerned) by the idea that "nobody seems to be sure how these sales should be handled in the accounts".
VAT must be declared on the full value of these sales. i.e. like Scalloway says, before deduction of the fees charged by UE, JE etc. Where VAT is charged by UE etc on their fees, the company can recover this as input VAT if it is on the Standard method.

 

[TheSkyisGray]

FRS would only be beneficial if their input VAT was very low. Of course you should include the online sales. I would get advice to ensure it is all compliant since it would be far more costly if it turned out not to be.

It is a really hard market. Has he compared his prices to his competitors?

 

[Paul Kelly ICHYB]

1. Find a new accountant - one that helps you on the basis you are paying them
2. You can't make a decision based on one VAT return (or is that annual?)

3. He is really struggling to make a living,

   Put the prices up

4. but other owners of similar businesses claim to be doing OK

   So? Without knowing their details (get a copy of their accounts?) who knows? Worry about your own business, not others

5. ince no-one seems to be sure how these sales should be handled in the accounts

   A half decent accountant would!

6. or what would have to be a very modest fee

   If the fee is even the same as a couple tax returns potential savings, modest is irrelevant!

 

[david.nye]

Thanks to everyone for the replies. Much food for thought, if not quite what I was looking for. In case it helps anyone else, another accountant made the following points.

Provided that the yearly sales is below £150,000, then the catering company is eligible for the VAT Flat Rate Scheme BUT you can not reclaim VAT from your purchases which can be found here on HMRC website www.gov.uk/vat-flat-rate-scheme. Under the VAT Flat Rate Scheme, HMRC guidance states that "you cannot reclaim the VAT on your purchases' (this is in the link). Based on this, he is better off on the standard scheme of VAT.

On the invoices for Uber Eats, Deliveroo and Just Eat, they are legally obligated to state the net, VAT and gross amounts of the invoices that they provide. In the accounts, Uber Eats, Deliveroo and Just Eat should be recorded as commission.

Based on the figures that you have provided, the purchases look a little on the low side. I'm not sure if certain VAT on expenses such as electricity, heat and lighting is included. You can reclaim VAT on items you buy for use in your business which includes electricity, heat and lighting.

If you wish to have a discussion regarding the detailed accounts, please contact me further

 

[pentel]

Net sales	39085​
Net purchases	25968​

Gross profit seems rather low for a catering company.

 

[Newchodge]

Gross profit seems rather low for a catering company.

Is this a catering company or a cafe/takeaway?

 

[david.nye]

Is this a catering company or a cafe/takeaway?

It is a takeaway, "catering" is the FRS category.