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Confirmation on VAT situation please

Could someone please clarify my understanding of a VAT point for zero rated businesses.  I'm pretty sure I know the answer but it would be nice to have this confirmed before I meet a prospect this afternoon.

This prospect (sole trader) sells pies at farmers markets and similar.  Now I know I need to confirm that these are sold cold to be consumed away from his stall (i.e.: no seating area outside his stall) for the supply to be zero rated, but at this stage I'm pretty sure this is the case.

Obviously he would charge no VAT on the supply and can claim all of his input VAT back.  I just need to confirm that the reclaimed input VAT isn't assessed as income on his self assessment.  I don't believe it is but it seems a pretty good scheme if not - so good that I'm wondering if I've missed something.

Thanks in advance

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By BKD
19th Mar 2012 11:13

It's not a 'scheme'

Just a consequence of a zero-rated supply - just as farmers, for instance, usually find themselves in a repayment position. If you need to provide yourself with any comfort, just tell yourself that the input VAT is effectively being taxed because your client can claim only the net expenditure as a tax deduction.

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Thanks BKD - that's what I thought.  It just seems pretty cool to be able to get 100% tax relief of the input VAT rather than 20%!!

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OK - to clarify for those confused - equivalent of 100% tax relief on the VAT - i.e.: if he registers fro VAT he gets 100% of the input tax back into his pocket rather than 20% of it he gets as a tax deduction if he doesn't register.

That clear things up?

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By BKD
19th Mar 2012 13:39

The penny drops

Thanks

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19th Mar 2012 11:42

You seem confused

I do not understand what you mean by '100% tax relief of the input VAT rather than 20%!' The refund of Input VAT will reduce costs in the SA  comp not be treated as income, but it will affect the tax due.

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By BKD
19th Mar 2012 11:49

Confused?

Me too ;)

 

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19th Mar 2012 14:35

yes you are confused:

 

 

Me too ;)

if you account for vat in the accounts for the quarters he got a vat repayment

 

your clients cost of sales will be 20% less and his GP higher.

 

your client will have a 3 monthly cash flow benefit from zero rating(with vat repayments) whilst the income tax cost when annual accounts are filed will be the tax on the extra profit arissing from lower cost of sales and a regular "vat debtor" accounting.

 

dont confuse income tax & NIC reporting(every year) and  collection(every 6 months) with vat reporting and accounting("the unpaid tax collector"") every 3 months.

the vat contra will always be a balance sheet item; but income tax/nic is drawings in your case.

[/quote]

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Let me get this straight

You met a pieman going to a farmers' market? No chance that it was one of these Country Fayres?

Chris you must know that there are three sorts of accountants; those that can count and those that can't?

How much input VAT does the pieman actually incur?

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22nd Mar 2012 12:22

I was waiting for it !

George Attazder wrote:

You met a pieman going to a farmers' market? No chance that it was one of these Country Fayres?

Chris you must know that there are three sorts of accountants; those that can count and those that can't?

How much input VAT does the pieman actually incur?

Oh dear oh dear....

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19th Mar 2012 13:43

Be careful

You will have to make sure that your client has a stick or similar implement (this will qualify for AIA) to knock any pies sold out of the hands of anyone who looks like they might try to eat them before they get a sufficient distance from his stall.

Seriously, this gets surprisingly complicated. There are gaps in the rain forrests that exist soley because of the requirement for paper to record the various ways that the EU VAT authorties try to define this issue.

 

 

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I had a filling...

... that that was what you were getting at, it was just that others couldn't suet.  Now we've got to the crust of the issue we can see just what's at steak and ale have to remember this, so I don't end up all pastry-faced again.

I'm curious how much VAT we're talking about though; because it seems to me that his inputs are food (zero-rated) and his (probably informal) pitch at the farmers' market (probably exempt).

A bit of gas/leccy at home baking his wares (sounds like a euphenism, but it isn't) at 5% VAT and job done.

Doesn't seem consistent with your excitement is all.

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By blok
19th Mar 2012 14:43

.

david, I'm confused now.  what kind of pies are we talking about again?

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Incidentally

He can sell his pies hot if it's because he's just cooked them.

In the 1987 case of John Pimblett and Sons Limited it was accepted that the only reason their pies were hot when they sold them was because they'd just cooked them.  It was just a matter of choice that they cooked all their pies just before lunch time!

Not sure who ate them all though.

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19th Mar 2012 17:26

What ingredients would make them VAT'able

Just stirring but would a Mississippi Mud Pie be subject to VAT?  How about a chilli and chocolate pie  (never heard of it but I am sure somebody might have tried to make one)?

 

 

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22nd Mar 2012 10:49

Oh Dear!

A little knowledge is a dangerous thing.  

 

 

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By kross
22nd Mar 2012 11:49

Rule change

Might be worth everyone taking stock of yesterday's budget as I believe there is a change affecting the VAT rules in connection with sales of food that would seem to indicate pies (and other items) will be standard rated whether hot or cold and wherever consumed.

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22nd Mar 2012 13:24

If only

I really reall really wish that the Input vat reclaimed had to be put in the SA comp as income, because the flip side of this is the 50K vat I pay every quarter to HMRC could go in as a tax deductable expense and the would certainly put a dent in my tax bill

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22nd Mar 2012 13:39

You should sell Pies

Instead !

Probably will see a return to pre SSAP 5 accounting for vat soon if the OTS get to hear of a stupid method that existed before.

Now be sure to cover your trail and eat all those pies !  Wfwfat fies ?

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22nd Mar 2012 13:57

When I was at Accountancy School and they got to SSAP5 it just said withdrawn...always wondered what it was

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22nd Mar 2012 14:26

SSAP5

issued in April 1974 and it's still there !

 

You are thinking of SSAP 1 ?? associated companies or something like that.

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22nd Mar 2012 17:37

I wonder if the chancellor was following this thread, as he has acted on this very issue.

As I understand it, the pie police will now be at the market to stick thermometers in said pies at the moment of sale - if they are above ambient temperature - they're vatable. The same applies to rotisserie chickens.

 

http://www.dailymail.co.uk/news/article-2118479/BUDGET-2012-The-takeaway...

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There is no change (yet!)

Nothing has changed as yet.  A consultation document proposing new legislation has been issued.

The relevant bit says, "'hot food' means food which, or any part of which, is above the ambient air temperature at the time it is provided to the customer, other than freshly baked bread."

The effect is stated by the condoc to be that:

"Examples of products affected by the change include: rotisserie chicken products, pies, pasties, toasted sandwiches etc. when above the ambient air temperature at the time they are provided to the customer

Examples of products not affected by the change include: Freshly baked bread; and pies, pasties, sandwiches etc. when at or below ambient air temperature at the time they are provided to the customer."

It maybe an anathema to HMRC but the consultation process itself will probably be enough to put it on the back-burner.  The proposed legislation faces a very rocky road to enactment in my view. Go Cornish Pasty Association! Go!

Black Knight is correct that SSAP 5 is extant, but there wasn't really a pre-SSAP 5 accounting treatment for VAT. VAT was invented in 1973. Apparently it was going to be "a simple tax". As true today as it's always been.

As for the Mississippi Mud Pie, it shouldn't be stirred. I'm not sure what point the troll in the thread was making; man of few words I guess.

Still curious just how much input VAT the OP is actually talking about though.

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23rd Mar 2012 11:43

George

Where does one read the 'Condoc' as I read bits of the budget report and it mentioned these consultancy documents, but I'm not sure where I need to go to see them.

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Most of it's on HMRC's site

I assume from what you say that you've seen the budget information on HMT's site.

The gory detail is at http://www.hmrc.gov.uk/budget2012/.

The VAT condoc is at http://www.hmrc.gov.uk/budget2012/vat-con-4801.htm.

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23rd Mar 2012 12:01

Ahhh

George Attazder wrote:

I assume from what you say that you've seen the budget information on HMT's site.

The gory detail is at http://www.hmrc.gov.uk/budget2012/.

The VAT condoc is at http://www.hmrc.gov.uk/budget2012/vat-con-4801.htm.

 

I was looking for the Condoc in the same area as the Budget itself.

 

Thanks for that, I'll have a read!

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