Query re Chip Shop VAT

Query re Chip Shop VAT

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A friend of the family is taking over a chip shop/restraunt on the coast.

The gist of the question is that he doesn't want to have to pay VAT (as he currently does at his inland chip shop which he is closing to move, and is sick of paying vat on sales but hardly getting any back on purchases) and so wants to keep his turnover below £60,000 (by early closing etc to keep it under the limits). However, he doesn't think he can support his family on the net profits this would give, and so wants to know his options.

I know he needs to see someone for a proper consultation and to crunch numbers, but in general terms are there any systems or schemes he can join up to allow him to take a decent income but not pay 'over the top' VAT?

I have suggested the flat rate scheme, but that is the limit of my VAT knowledge.

Any suggestions?
Roland Rat

Replies (7)

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By AnonymousUser
03rd Oct 2006 05:35

Flat rate scheme?
Perhaps he's eligible for one of the lower-rated flat rate schemes?

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Lamb
By Rehan1
02nd Oct 2006 21:25

Chip shop ---- isn't this zero rated suppies.

i may be wrong ,please correct me if i am , as there is no VAT on food ,i read this on the website.

Food is Zero Rated supplies.

However, resturants can charge VAT.as they sell luxury food.


Kind Regards
Rehan.

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By theaardvark
02nd Oct 2006 14:10

No.
If his turnover exceeds the VAT regisration threshold then he will need to be registered for VAT. There is no way to avoid this.

The FRS probably won't save him much, if anything, as it is designed to reduce the burden of administration not the amount of tax due.

He may feel that it is unfair that he has to pay so much tax, but all of his competitors should be faced with the same burden so he should be able to set prices that reflect the inclusion of VAT.

Regards

Paul Taylor
Dains

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By User deleted
03rd Oct 2006 07:53

I'm reliably informed...
...that fish and chips are a luxury item(!) so are VATable. He certainly has to charge VAT on them at his current shop anyway.

His main woe is that he buys potatoes (zero rated, nothing to reclaim) and cuts them up, whereupon they become VATable and he has to pay VAT.

But he does all right from it, his daughter is certainly pretty spoiled, so there must be gold in them thar' fish (hehe, goldfish...)

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By neileg
03rd Oct 2006 12:46

Puzzled
There are a number of trades where there is little or no input tax but all outputs are standard rated. These are largely those involved in selling services (no VAT on wages and salaries) or those involved in catering (zero rated inputs). The profit margins in these trades where sales are to the public reflect the imposition of VAT. Whatever it feels like, the output tax is paid by the customer, not the trader.

I suggest that if it makes the chip shop owner more comfortable, he could ask his fish and potato suppliers to charge him an extra 17.5% on the bills and refund this 3 months later!

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By nigel.betts
03rd Oct 2006 16:15

flat rate scheme is best bet
Well you don't really want to cut back on sales if it leads to an inadequate profit and therefore, would most probably have to register for VAT.

As you pointed out there is the option of the flat rate scheme which simplifies the process and can save you the amount of VAT you have to pay over.

There is a section on HMRC website that calculates the potential VAT payable under the flat rate scheme to see if you would save tax or or not.

Based on what I've heard so far the flat rate scheme is probably the best bet.

I do understand the problem, I know of fish and chips shops who have been stung by increases in VAT by the government in the past. Whilst they should be passing this increase on to their customers, many in the industry do not and instead their profits take a hit.

Anyway if your friend wants some further advice on the flat rate scheme, he can email me at [email protected]

Cheers

Nigel

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Euan's picture
By Euan MacLennan
03rd Oct 2006 18:50

Flat rate scheme
The flat rate for catering services, including restaurants and takeaways, is 12% of VAT inclusive turnover, which equates to 14.1% of net turnover. For the first year from registration, the rate is 11% (12.9% of net). As there is no VAT to pay on the raw food and wages, the flat rate looks quite attractive, unless perhaps he has to pay VAT on rent for the shop/restaurant premises. If he is paying rent, he is unlikely to make much profit out of a turnover of less than £61,000 - the current registration limit.

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