How can I reduce or eliminate my VAT bill?

How can I reduce or eliminate my VAT bill?

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My restaurant is turning over around £150k per year, we are considering switching to the 12.5% flat rate, but I wondered if we would I be able to lease the restaurant to other companies on different days of the week so that the turn over falls bellow the VAT threshold for each one? Or would this breach anti avoidance laws? If anyone knows of any other ways to reduce or eliminate my VAT bill I'm open to suggestions, we have only been open for 8 months and this is killing us, there is nothing left over for re-investment

Replies (6)

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By andy.partridge
12th Nov 2013 22:30

Forget it
It's a non-starter.
A question, and I don't mean this provocatively, but do you think that VAT is killing all restaurants of your size? Either your initial business plan is flawed and it is impossible to make a living from your premises, or you are faced with the usual and typical problems of any business, ie. how do we increase sales and reduce costs.

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By mackthefork
12th Nov 2013 23:03

Flat rate might be better

Depends on how much wine you buy really.  If your turnover is evenly spread throughout the year you will pay around £5,625 a quarter once you get pas the first 12 months of registration.  Are there days of the week where you make a marginal loss (sales-direct variable costs), if so you could close those days down, but I do not think that would be enough to get you under the VAT threshold so the problem would still exist.  It is definitely a genuine problem for an independent operator who deals mainly with members of the public, as they are often price receptive and also this is a common area for VAT evasion, and phoenixing (if not a word, it should be).  As Andy says you really need to look forward and increase sales whilst controlling costs aggressively.  I would suggest you look to do as much turnover as possible on best use of current resources, i.e. run at capacity, and take a look at every aspect of what you do, and only provide what your customers value, and trim anything else down to the minimum necessary.

Regards

Mack

Thanks (1)
Locutus of Borg
By Locutus
12th Nov 2013 23:15

Don't do the multi-company thing

Creating one company for each day of the week will obviously not work.  I suggest that you Google "VAT aggregation rules".  When HMRC find out, there will be a huge VAT bill, penalties and if you are unlucky the potential for criminal sanctions, so please don't do it.

If you could reduce your sale price by 20%, whilst at the same time not being able to reclaim VAT on some of your costs, would that really transform your business from one that is being "killed" at the moment?

Like Andy says, some businesses are flawed.  Perhaps you are in the wrong location.  Maybe there are too many better looking restaurants near by.  Perhaps your service is not good enough compared to your local competitors.  Try and find out what the underlying problems and look to resolve those issues.

I don't envy you, though.  Running a restaurant must be one of the hardest types of business that I have seen to run profitably.  Good luck.

 

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Replying to James Green:
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By mackthefork
12th Nov 2013 23:39

Why would he need to reduce his price by 20%

Customers do not care that he is VAT registered, they would pay the same whether he was or not, he just would not be paying HMRC £25,000 a year.  However that is the law, like it or not.

Regards

Mack

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By Gary Hornby
12th Nov 2013 23:27

Watch the scheme limit

Be mindful that if expected taxable supplies in the next 12 months exceed £150K then the Flat Rate Scheme cannot be used.  If you register for the FRS and exceed this limit, keep your workings to show that your forecast of less than £150K was reasonable.  And, as Andy says, artificially separating your business to avoid VAT is a big no no!

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By IR35
13th Nov 2013 03:09

Whats your GP at the moment, hours you open, your rent (and council tax).

Also what sector is your restaurant in? (kind of food)

If your GP is less than 60% on food then alarm bells will ring.

 

If you still have some cash flow, then my first suggestion is to get into the kitchen and weigh up your ingredients for each dish,  take out maybe 6% to 20% for wastage, then multiply the cost for each dish by a factor of between 3 or 4, this should be the min price you charge per dish.

I,e a basic chicken starter dish should be,, 100g at £2,98/kg (brazil chicken price),   30p + 20 veg,  sell it at £1.50 min, £2.00 realistic, £2,50 is the zone you should aim for.

 

As for reducing Vat,   well you could become a SUBWAY or GREGGS store and get away with it, else its down to getting a good GP, low overheads, and accepting  VAT is just there,  how on earth can you add Value to something that is zero rated is insane,   Value added tax is just that.

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